May 17 Deadline Passes for Nearly $1 Billion in Unclaimed 2020 Tax Refunds

WASHINGTON — The final deadline for taxpayers to claim nearly $1 billion in outstanding refunds for the 2020 tax year passed on May 17, 2024, with the Internal Revenue Service reporting that an estimated 940,000 individuals and businesses failed to file their returns and will now forfeit the funds.

The unclaimed money, which now reverts to the U.S. Department of the Treasury, represents a significant pool of capital left on the table from a uniquely challenging tax period. The IRS had extended the typical three-year window for filing a prior-year return due to the COVID-19 pandemic, shifting the original April 2024 deadline to May 17. The median potential refund for the 2020 tax year was estimated by the agency to be $932.

For small and mid-sized businesses, the passing of this deadline is a stark reminder of how easily financial opportunities can be lost amidst operational chaos. The 2020 tax year was uniquely complex, with new programs like the Paycheck Protection Program and various employee retention credits creating a confusing landscape for even seasoned business owners. In our experience, many companies were so focused on immediate survival during the pandemic that long-term financial compliance, including filing returns that might yield a refund, fell by the wayside. This is not just about a single missed refund; it is a symptom of a reactive, rather than proactive, financial strategy.

A failure to file can have cascading consequences beyond lost funds, potentially leading to compliance issues and missed opportunities for strategic tax planning in subsequent years. Our firm's tax preparation and compliance services are designed to prevent precisely these kinds of oversights by establishing a consistent, year-round approach to financial management. A robust tax strategy ensures that no deadlines are missed and all eligible credits are claimed, turning compliance from a burden into a strategic advantage. Business owners can learn more about building a resilient tax strategy by contacting C&S Finance Group LLC at csfinancegroup.com.

In a statement preceding the deadline, IRS Commissioner Danny Werfel urged taxpayers to act. “We want taxpayers to claim these refunds, but time is running out for people who are owed money for the 2020 tax year,” Werfel said. “There’s no penalty for filing a late return if you’re owed a refund.”

The group of non-filers likely includes a wide range of individuals, from students and part-time workers who may not have realized they were due a refund, to businesses that experienced significant income fluctuations or operational disruptions during the first year of the pandemic. A key component of the unclaimed funds is tied to the Recovery Rebate Credit, a provision that allowed eligible individuals who did not receive their Economic Impact Payments, commonly known as stimulus checks, to claim them by filing a 2020 tax return.

Many low- and moderate-income workers may have also missed out on the Earned Income Tax Credit (EITC). For 2020, the EITC was worth as much as $6,660 for taxpayers with qualifying children. The IRS noted that some individuals may not have filed because they had too little income to trigger a formal filing requirement, unaware that they were still eligible for refundable credits like the EITC and the Recovery Rebate Credit.

Beyond the loss of the refund itself, there were other consequences for those who failed to file. The IRS noted that the 2020 refund checks could be withheld if a taxpayer had not filed returns for the 2021 and 2022 tax years. Furthermore, any refund amount would first be applied to outstanding debts owed to the IRS or state tax agencies, and could also be used to offset unpaid child support or other past-due federal debts, such as student loans.

To claim a refund, individuals and businesses needed to file a Form 1040 for the 2020 tax year. For those who needed to file, the IRS made prior-year tax forms available on its website. The agency also reminded taxpayers that it could provide necessary income documents such as Form W-2, 1098, 1099, or 5498 for those missing them from employers or banks.

The push to resolve the 2020 filing gap is part of a broader effort by the IRS to work through its pandemic-era backlog and encourage taxpayers to become current with their obligations. The agency has repeatedly emphasized the benefits of electronic filing and choosing direct deposit, which it cites as the fastest and most secure way for taxpayers to receive their refunds in the future.

With the 2020 refund window now closed, attention will turn to subsequent tax years. The three-year window of opportunity to claim a refund for the 2021 tax year is scheduled to close on the tax deadline in 2025. Tax professionals will be watching to see if filing rates for that year, which also featured significant pandemic-related tax law changes, show similar patterns of non-compliance and unclaimed funds.