Clock is ticking on $1.1 billion in unclaimed 2007 tax refunds
Unclaimed 2007 tax refunds add up to more than $1 billion, according to the IRS. Taxpayers who haven’t claimed their 2007 tax refund must get current on their tax returns by the 2011 tax deadline or the federal government keeps the money. Keeping the unclaimed 2007 tax refunds would be a drop in the bucket as far as deficit reduction because the gap between taxes owed and taxes paid amounts to more than $350 billion a year.
Collecting unclaimed 2007 tax refunds
Unclaimed tax refunds, which total about $1.1 billion, from 2007 are waiting for nearly 1.1 million taxpayers. About half of those unclaimed 2007 tax refunds are for $640 dollars or more. According to the IRS, some people are owed tax refunds because their income was too small to require filing a 2007 tax return, yet taxes were withheld from their wages anyway. Other taxpayers may have lost track of their quarterly estimated payments. IRS policy allows taxpayers up to three years to claim their refunds before the U.S. Treasury snaps them up. To collect the money, people have to file their 2007 tax return by April 18. If they haven’t filed for years 2008-2010, those returns have to be completed as well in order to claim the 2007 tax refund.
The Earned Income Tax Credit
In its announcement about unclaimed 2007 tax refunds, the IRS said the lower-income workers –the bulk of taxpayers who are owed money — could also be missing out on claiming the Earned Income Tax Credit on their 2007 tax return. The Earned Income Tax Credit, or EITC, could increase the amount of the unclaimed tax refund after the 2007 return is filed. The EITC returns taxes that low-income workers and people who lost their jobs paid during the tax year. Unlike most nonrefundable tax credits that only take the tax bill down to zero, the EITC can net a refund even for taxpayers with no tax liability. For example, if a taxpayer owes $800 and qualifies for a $1,000 EITC, that person gets a $200 refund. In 2007, taxpayers eligible for the EITC included individuals earning no more than $14,509, families with one child earning no more than $35,241 and families with two or more kids with a total income less than $39,784.
The tax gap
While the U.S. Treasury owes taxpayers about $1.1 billion in unclaimed tax refunds for 2007, the amount of taxes that go uncollected, known as the tax gap, amounts to more than $350 billion a year. The IRS estimates that only 86 percent of federal income tax due is collected on time. The $350 billion tax gap results from taxpayers who under-report income, underpay taxes or fail to file their taxes. The tax gap costs honest taxpayers as well as the federal government. Honest taxpayers pay about 20 percent more to make up for tax cheats because tax rates are set higher to cover the shortfall. In 2001, the tax gap placed a “surtax” of about $2,680 on every U.S. household.