U.S. Markets closed

This Mistake Is Costing Taxpayers $1.4 Billion in Refunds

Maurie Backman, The Motley Fool

Not all taxpayers are required to submit a return. If your income is low enough, the IRS doesn't mandate that you file one.

But that doesn't mean it wouldn't pay to submit a return nonetheless. If you do file a return, you might manage to make some money from it if you wind up eligible for refundable tax credits that pay you back, even when your tax liability would otherwise be $0.

In fact, it's estimated that taxpayers are owed a whopping $1.4 billion in refunds from the 2016 filing season. The reason likely stems from the fact that filers who were eligible for valuable tax credits didn't submit their 2015 returns, and as such, are currently running the risk that that money will be lost forever. If you were a lower earner back in 2015 and therefore didn't file a tax return, now's the time to revisit that situation -- before it's too late.

Man smacking his head with mouth agape

Image source: Getty Images.

Don't wait to claim what's yours

If you don't file a tax return but are owed money, the IRS has no way of knowing what to pay you. That's why filing a return when you aren't required to is generally a good idea, and the reason largely boils down to a valuable tax break called the Earned Income Tax Credit, or EITC.

The EITC is designed to help low-income households. Eligibility depends on your income combined with your filing status and the number of children in your household, but to give you an idea, for the 2018 tax year, you can claim the credit as a married couple filing jointly if you have no children but earn $20,950 or less. The more children you have, the higher the income threshold for EITC eligibility climbs.

Furthermore, because the EITC is a completely refundable tax credit, claiming it could put serious money back in your pocket. Back in 2015, the EITC was worth a maximum of $6,242. To snag that, you'd need three or more children to claim on your return for that year. But if you didn't file a tax return for that year and think you were actually entitled to the EITC, it absolutely pays to make up for lost time.

But don't wait. The IRS gives you three years from a given tax year's filing deadline to get that return submitted. This means that you have until mid-April of 2019 to file your 2015 tax return, which was due in April of 2016. That might sound confusing, but remember, you always file tax returns for a given year after that year has passed. Keep in mind that there's no penalty for filing a late return if the IRS owes you a refund, so if your earnings were low enough to avoid filing in the first place back in 2015, you really have nothing to lose by getting that return together and seeing what it does for your wallet.

More From The Motley Fool

The Motley Fool has a disclosure policy.