Unclaimed IRS Tax Refunds

Last week my team posted a handful of articles to the RoniDeutch.com learning center, including this informative article on unclaimed IRS tax refunds, and unfilled tax returns. As the article explains, the average undeliverable refund check in 2009 was $1,148, and although there are various reasons these refunds go unclaimed the most common cause is an unfilled return.

Each year, it is estimated that hundreds to thousands of individuals fail to file tax returns which would otherwise result in a refund. Unclaimed tax refunds often result as a busy taxpayer who is expecting a tax refund puts off sending in the tax forms until it is completely forgotten. As of March 2010, there is about $1.3 billion is sitting in Internal Revenue Service coffers, lost by the more than a million taxpayers who neglected to file a 2005 tax return by April 15, 2009.

The deadline for claiming a refund for 2006 was April 15, 2010. All unpaid refunds for 2006 were handed over to the U.S. Treasury.

Each year, some people don’t file a return because they don’t owe taxes. But knowing that you will not owe taxes for a given year should not prevent you filing a tax return, because you may still be eligible to receive a refund through various credits. The IRS doesn’t send refunds until it gets a Form 1040 (or 1040A or 1040EZ) that details just how big the government’s check should be. So, even if you will not owe taxes, filing a return may be in your best interest.

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Top Ten List Of Things To Know About Making Federal Tax Payments

With only a little over a week before the tax deadline, many taxpayers are rushing to get their returns prepared. Unfortunately, it can be easy to make a mistake and if you owe the IRS money then you face the risk of an additional fee or penalty if you do not get your taxes paid in full before April 15^th. CreditUnionsOnline.com put together a nice list of 10 things to know about making federal tax payments, and if you need to write a check to the IRS this year then I highly recommend checking out their full list here.

1. Never send cash!

2. If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.

3. Whether you file a paper return or electronically, you can pay by phone or online using a credit or debit card.

4. Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.

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10 Secrets the IRS Does Not Want You to Know

Dealing with IRS collection agents can be a scary thing, however as this blog entry from my law firm’s website points out, there are dozens of secrets about the tax debt collection process that the IRS does not want taxpayers to know. After defending Americans against the IRS for nearly twenty years, my staff and I are familiar with all of the IRS’ secrets and collection tactics. I have included a few of the items on the top 10 list below, but you can check out the full text at the Roni Deutch Tax Relief Blog.

1. Automatic Extensions

Although we all rush to get our tax returns filed before the April 15th filing deadline ever year, the IRS actually provides you with an easy way to get an extra six months to file your return. By requesting an automatic extension using IRS Form 4868, you can get a few extra months to file your return. In many cases, it is often better to request an extension then to file a flawed return that will result in an audit or back tax liability.

In addition, filing for an extension alone carries no penalty with it. Rather, it is the failure to pay on time that will result in interest and penalties. An automatic extension does not extend the deadline to pay taxes to the IRS. Therefore, if you anticipate having an outstanding tax liability, you will still need to pay the IRS by April 15th to avoid penalties and interest. On the other hand, if you are expecting a refund, then you need not worry about being penalized for requesting an extension.

2. The IRS Wants To Settle Quickly

It may not seem like it when you are dealing with them, but the IRS actually wants to settle your delinquent account as quickly as possible because pursuing collections against you can be expensive. In some cases, the IRS can even be convinced to settle your account for less than what you owe. However, you will need to convince the IRS that because of your financial circumstances it is better for them to accept your offer to pay a reduced amount.

3. The IRS Does Not Want to Seize Your Assets

One common misconception is that the IRS prefers to seize your personal property and liquidate it to satisfy your tax debt. However, the process of identifying, locating, seizing, and selling your assets is a very difficult and labor-intensive process for the IRS. As such, the IRS would much rather settle with you then go down this path. Additionally, issuing a wage garnishment or bank levy is much easier and cheaper for the IRS to obtain. If you ignore your tax debts, then the IRS will likely try to use a wage garnishment or bank levy to try to collect from you as opposed to seizing your assets.

Questions for the Tax Lady: November 30th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: Roni, I got married last month and I was wondering if my new husband and I should still file as single with the IRS since we were wed so late in the year?

No, as long as you are legally wed before December 31^st, then you are married in the eyes of the IRS. Therefore, you will either need to file as married filing together, or married filing separately. Depending on your unique financial situation, it might be more beneficial to select one option or the other.

Question #2: What is nontaxable income?

Nontaxable income is pretty much exactly what it sounds like – income that is exempt from taxation. If you have to file a return, there are some kinds of nontaxable income that do need to be included on your return, but will not be included in the total amount subject to income taxes. These types of nontaxable income include child support payment, most life insurance proceeds, certain veterans’ benefits, public assistance payments, etc.

The 0% Tax Rate Solution

From the Wall Street Journal:

The federal income tax code is now so mangled that we can probably increase federal revenues with a 0% income tax rate for a majority of Americans.

Long before President Barack Obama took office, the bottom 40% of income earners paid no federal income taxes. Because of refundable income tax credits like the Earned Income Tax Credit (EITC), in 2006 these bottom 40% as a group actually received net payments equal to 3.6% of total income tax revenues, according to the latest Congressional Budget Office data. The actual middle class, the middle 20% of income earners, pay only 4.4% of total federal income tax revenues. That means the bottom 60% together pay less than 1% of income tax revenues.

This actually resulted from Republican tax policy going all the way back to the EITC, which was first proposed by Ronald Reagan in his historic 1972 testimony before the Senate Finance Committee on the success of his welfare reforms as governor of California. Besides calling for workfare, Reagan proposed the EITC to offset the burden of Social Security payroll taxes on the poor. As president, Reagan cut and indexed income tax rates across the board and doubled the personal exemption. The Republican majority Congress, led by former House Speaker Newt Gingrich, adopted a child tax credit that President George W. Bush later expanded and made refundable, while also reducing the bottom tax rate by 33% to 10%.

President Bill Clinton expanded the EITC in 1993. But it was primarily Republicans who abolished federal income taxes for the working class and almost abolished them for the middle class. Now Mr. Obama has led enactment of a refundable $400 per worker income tax credit and other refundable credits, which probably leaves the bottom 60% paying nothing as a group on net.

Many conservatives are deeply troubled by this, arguing that everyone should be contributing something to the tax burden. They worry that, not paying for any of the tab, this majority will see no reason not to vote for limitless spending burdens. But are conservatives now going to campaign on increasing taxes on the bottom 60%, arguing that is good tax and social policy? Steve Lonegan recently demonstrated in the New Jersey gubernatorial primary that this is not a viable political position. He proposed a 3% state flat tax which, while very good tax policy, would increase taxes slightly for the bottom half of income earners. His victorious opponent Chris Christie pounded away in advertising on that point.

But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners? With that explicit 0% tax rate framing the issue, abolishing the refundable tax credits that actually ship money to lower income earners through the tax code would become politically viable. Trading an explicit 0% tax rate for the bottom 60% in return for eliminating the refundable tax credits would likely be at least revenue neutral, and probably result in a net increase in revenue.