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I posted the following as a comment on another forum topic, but I think maybe it merits a stand-alone conversation. In my time as a tax preparer I witnessed at least a dozen instances where large refunds were held up either by the IRS or the state.
I have mentioned this cautionary warning before regarding over withholding. A client had about $8k withheld from a $10k distribution. Her situation changed one year and she was due an $8k tax refund. The IRS believed the withholding on the 1099R to be an error, and held up the processing of her tax return. Even after multiple conversations with the IRS, it still took them nearly 3 years to refund the money. Fortunately the taxpayer didn’t need the money, and the IRS paid her interest totaling about $1k for the delay.
The moral of my story is that it’s better to owe the IRS a couple bucks than to risk having them delay your refund.
I do tax returns for AARP Tax Aide. I had clients come in after several years of not filing returns as they did not meet the IRS minimum thresholds for owing taxes. I generally advise them to file returns every year, regardless of income. This may prevent the bad guys from filing a false return and getting refunds under their SS number. Also, here in Michigan, many low/no income filers can receive state tax refunds for property tax or utilities.
BTW, I got my unsolicited IP PIN after the IRS got hacked over 10 years ago. They now send me one every year.
Harold, Great advice. Any of my PA and NJ Tax Aide clients filed just for property tax relief.
We had a number of clients this year who forgot they had an Pin. We were able to help them look them up real time. It’s not something people seem to remember year to year.
Right on Harold. For the same reason you mention, whenever one of my regular clients no longer had to file, I offered to prepare a return for them for $10.
Michigan has several refundable tax credits, as well as the deduction for tax paid to Ohio cities. Many Ohio preparers are not aware of them, so don’t claim them when doing MI returns.
I usually prefer to slightly underpay. However, last year, all of my tax payments were refunded. I moved to a Continuing Care Retirement Community, and part of my non-refundable entry fee counted as pre-payment of medical expenses. It turns out the amount was calculated across all the people who moved in that year, and since the CCRC opened a new building that was a lot of people. My medical expenses last year added up to around $213,000! I hadn’t expected it to be that high.
I had asked the IRS to deposit my refund to my checking account. Instead they sent a check, followed by a letter explaining that my return had needed additional processing and so they were sending a check. Apparently my supporting documentation was adequate.
Good news – I don’t have to worry about penalties this year.
I’ve gotten at least three or four notifications just this past year, of various entities that have informed me that they’ve been careless with my personal information, and allowed it to be compromised. All it takes to file a fraudulent tax return is a SS # and birth date. All you need to do to get an IPPIN # is go to IRS.gov and log in to your personal account and verify your ID. Once you do this, you will need to retrieve your new IPPIN # every year in January, as it changes year to year.
One other way to deal with either a fraudulent return, or the potential of the IRS holding up your refund, is to simply roll that year’s expected (potentially compromised) refund forward, and apply it to the coming year. This is not necessarily ideal in all situations, but it might be a way to circumvent the aggravation of having to with the IRS for months (or years!) on end, trying to coax them to pay you a refund. I’d rather miss out on a little interest, than deal with the stress of endless phone tag games with the nice folks at the IRS. Been there, done that, no thanks.
Great detail on acquiring the IP Pin. This is highly recommended! Thanks
Do I remember correctly that the IP PIN (or paperwork to get it) comes in the mail?
For annual renewals you can get the PIN online.
Online is best but there are alternatives. I did everything online, and the IRS mailed me a letter with the pin. You do have to register with ID Me, which involves uploading a picture. Here’s a link with more info:
https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin#:~:text=Filing%20an%20application%20for%20an,Protection%20Personal%20Identification%20Number%20PDF.
Dan: If you’re going to repost from another thread, so am I! Another reason to owe money each year to the IRS: Not only do you avoid making an interest-free loan to Uncle Sam, but also you’re less likely to be out of pocket if someone files a fraudulent tax return using your Social Security number. The late Julian Block wrote about that in an article for HumbleDollar.
Julian’s articles are chock-full of good tax information. I’m sorry to learn that he’s no longer with us.
I just read the Block article. Very interesting.
Yes, that happened to many of my clients. It’s also a good idea to get an Identity Protection Pin (IP Pin), which prevents anyone from filing under your name and SS number. I also suggest filing ASAP if possible.