Common tax mistake leaves $1 billion on the table each year

March 04, 2019 : Annelise Wiens

Each year, the IRS reports it has roughly $1 billion in unclaimed refunds just from people who didn’t file a return. That is an expensive mistake. For 2015, unclaimed refunds reached almost $1.4 billion. Many people don’t realize that they may be able to claim refunds of income tax that was over-withheld or qualify for a refundable credit like the earned income tax credit. The good news is that taxpayers have until April 15 to file or amend a 2015 tax return to claim a refund.

Not filing is just one mistake, and filing a return doesn’t mean the taxpayer is in the clear. Other mistakes taxpayers should watch out for include using the wrong filing status, making clerical errors, overlooking important credits and missing deductions.

Income changes impact tax outcome

Getting a raise or bonus, facing a pay cut or losing a job can happen to anyone. In addition to needing a new household budget, these taxpayers also need to take the tax impact into account. Not only could taxpayers move into higher or lower tax brackets based on their income, but some credits and deductions phase out depending on income.

Ignoring tax reform and paycheck withholding changes could set taxpayers up for an unexpected change in their refund. The potential for surprises comes from updated IRS tables employers use to calculate tax withheld from an employee’s paycheck. These changes generally resulted in bigger paychecks and less tax withheld starting in February or March of 2018, even if taxpayers took no action. Anyone who updated their withholding with their employer after the IRS made its adjustments in February can expect the withholding outcome to be similar to what they planned for when completing their W-4. It is everyone who did not update their W-4 who is most at risk of significant changes to their refund or balance due.

Using the correct filing status

One of the most common mistakes taxpayers make is selecting the wrong filing status. A taxpayer’s filing status can affect which credits and deductions they’re eligible for, the value of their standard deduction and their tax bracket.

One situation that can make choosing a filing status difficult is when more than one filing status seems to fit. For example, if a taxpayer with children is in the process of getting a divorce, they may not be sure if they should file as married filing jointly or married filing separately or, in some instances, whether they qualify to file as head of household. Or if a grandparent is taking care of their grandchildren and providing their sole support, the grandparent may qualify for head of household status.

Commonly missed credits

The thousands of changes to the tax code in the past decade make it no surprise some taxpayers miss out on available tax benefits.

Earned Income Tax Credit for lower-income workers

One of the most frequently overlooked tax credits is the Earned Income Tax Credit (EITC): 20 percent of eligible taxpayers do not claim this credit. Depending on their income and the number of children they have, lower-income workers may be eligible for an EITC of $519 to $6,431.

Because eligibility can fluctuate based on financial, marital and parental changes, a taxpayer can be ineligible one year and eligible the next. Another reason so many people overlook the EITC is because they may not earn enough money to have to file a return. The EITC is a refundable credit, so even if an eligible person does not owe taxes, they can still get the EITC.

Education benefits

Education credits are another often-overlooked benefit. Depending on the kind of academic program, what year the student is in, income and other restrictions, a student may use the American Opportunity Credit of up to $2,500 or the Lifetime Learning Credit of up to $2,000. It’s not uncommon for the parent to claim these credits instead of the student if the parent claims the student as a dependent on the parent’s return. Taxpayers who paid student loan interest may be able to deduct up to $2,500 even if they don’t itemize.

Common clerical errors taxpayers make

Life and tax changes aren’t the only reasons taxpayers leave money on the table. Taxpayers should double check their tax returns and make sure they haven’t made any clerical errors, like mixing up names and Social Security numbers, forgetting to include information reported on the W-2, 1099 or other forms, transposing numbers and making math errors.

Take a second look at old tax returns

Taxpayers have until April 15 to claim a refund for 2015. With H&R Block’s free Second Look, taxpayers can have their previously filed returns from 2015, 2016, 2017 and even 2018 reviewed to see if they made any mistakes that left money on the table. Those who haven’t yet filed and are using H&R Block’s online products can have a tax pro review their return before submitting it to the IRS. Taxpayers can see if a Second Look is right for them with a free online assessment and schedule an appointment online or by calling 1-800-HRBLOCK.

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Annelise Wiens

Annelise Wiens

Former Editor and Producer

As the former newsroom editor, Annelise Wiens was interested in more than just tax and industry news, but the stories of H&R Block's 80,000 associates, their communities and H&R Block's world headquarters in Kansas City, Mo. Wiens joined H&R Block in 2014 from a public relations agency, where she worked with clients in the financial services industry. Before that, she worked as a communicator for a senior member of the United States House of Representatives. She graduated from Biola University in La Mirada, CA with a bachelor's degree in history.

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