IRS Sets May 17 Deadline for Taxpayers to Claim $1 Billion in Unclaimed 2020 Refunds

WASHINGTON – The Internal Revenue Service announced on April 8, 2024, that a final deadline of May 17 is approaching for nearly one million Americans to file their 2020 tax returns and claim their share of more than $1 billion in outstanding refunds. Taxpayers who have not yet filed for that year risk forfeiting their money to the U.S. Treasury if they fail to submit their returns by the deadline.

Typically, taxpayers have a three-year window to file and claim a tax refund. However, for 2020 tax returns, the window was postponed to May 17, 2024, due to the COVID-19 pandemic public health emergency. The unclaimed funds are a result of individuals who earned income but did not file a return, potentially because their earnings were below the threshold that legally requires filing. Despite not being required to file, these individuals may still be owed a refund based on taxes withheld from their paychecks or their eligibility for refundable tax credits.

While the prospect of a four-figure refund is appealing, the reality for many individuals and small business owners is that filing a four-year-old tax return is not a simple task. In our experience, the 2020 tax year was uniquely chaotic due to the pandemic, with fluctuating income, new government relief programs, and widespread business disruption. Reconstructing records for gig work, freelance income, or a struggling small business from that period can be complex and time-consuming. It’s not just about filling out a form; it's about accurately accounting for a turbulent year to maximize credits without making costly errors. We often find that non-filers from that period were overwhelmed and may not even realize they are owed money. This deadline is a critical call to action, but it requires careful professional handling. For those needing to navigate this process, the tax preparation and compliance services offered by C&S Finance Group LLC can be invaluable. Visit csfinancegroup.com to get assistance before the May 17 deadline passes.

In a statement, IRS Commissioner Danny Werfel urged individuals to review their records and act quickly. “We want to urge people to review their files and start gathering records now, so they don’t run the risk of missing the May deadline,” Werfel said. “There’s money remaining on the table for hundreds of thousands of people, and we want them to claim these refunds.”

The IRS estimates the median potential refund for the 2020 tax year is $932. The agency also released state-by-state estimates, highlighting where the largest numbers of potential claimants reside. Texas leads the nation with an estimated 93,400 non-filers owed refunds totaling over $107 million. California follows with 88,200 individuals and $103 million in potential refunds, while Florida and New York have an estimated 53,200 and 51,400 non-filers, respectively.

Beyond standard over-withholding, a significant portion of the unclaimed money is tied to tax credits aimed at lower- and middle-income households. Many non-filers may have overlooked their eligibility for the Earned Income Tax Credit (EITC). For 2020, the EITC was worth as much as $6,660 for taxpayers with qualifying children. The EITC is designed to assist workers and families with specific income levels, and eligibility depends on factors like income, filing status, and the number of qualifying children.

Additionally, the 2020 tax year was the period for the Recovery Rebate Credit, a provision that allowed eligible individuals who did not receive one or both of the pandemic-era Economic Impact Payments (also known as stimulus checks) to claim them on their tax return. These payments were issued in 2020 and early 2021. Individuals who experienced significant life changes, such as having a child in 2020, or those who typically do not file a tax return may have missed out on these payments and can only claim them by filing a 2020 return.

To file a 2020 return and claim a refund, taxpayers must gather necessary income documents from that year, such as Form W-2 from an employer, Form 1099 from banks or other payers, and records from gig economy work or other businesses. Individuals who cannot locate these documents can request copies from their employer or financial institution. They can also use the IRS’s “Get Transcript Online” tool at IRS.gov to obtain federal tax information, including key data from forms like the W-2 and 1099.

The IRS has cautioned that there is a significant caveat for those seeking their 2020 refund. The refund check may be held if the individual has not filed tax returns for the subsequent years of 2021 and 2022. Furthermore, any refund amount from 2020 will be applied first to any outstanding debts owed to the IRS or state tax agencies and may also be used to offset unpaid child support or other past-due federal debts.

Taxpayers seeking their refund must properly mail their 2020 tax return, which must be postmarked by May 17, 2024. The IRS noted that there is no penalty for filing a late return that qualifies for a refund. Tax forms for the 2020 tax year, including Form 1040 and Form 1040-SR, remain available on the IRS website for taxpayers to complete and file.

Once the May 17 deadline passes, the unclaimed refund money will become the property of the U.S. Treasury, and taxpayers will no longer have a legal right to claim it. This final deadline underscores the importance for individuals and business owners to review their 2020 financial situation and determine if they are among the nearly one million people owed a portion of the $1 billion pool.