Tens of millions of Americans may be eligible for pandemic-era tax refunds – and even though the issue is still playing out in court, the deadline to file for relief is fast-approaching.
In Kwong v. United States, the US Court of Federal Claims last November ruled that a tax provision that requires tax filing extensions during disasters should have applied to the COVID pandemic, which officially lasted from Jan. 20, 2020, through July 10, 2023.
That means any Americans who were charged penalties or interest for failing to file their taxes or filing late during that time period shouldn’t have been charged at all, and are eligible for refunds, according to tax experts.
“I would suspect it’s a pretty big number. This happens to millions of people annually,” Nathan Goldman, an accounting prof at North Carolina State University, told The Post.
Failure-to-file or failure-to-pay penalties can quickly stack up. Filers who typically owe $20,000 in taxes might have been forced to cough up an additional $5,000 for a failure-to-pay penalty, according to Goldman – meaning they would be eligible for a $5,000 refund.
The failure-to-file penalty is 5% of a person’s unpaid taxes monthly, capped at 25%, and the failure-to-pay penalty is 0.5% of your monthly balance, with the same limit. Refund sizes would vary based on the type of penalty paid and your own tax information.
The court decision isn’t final, and the US government could still appeal it – setting up a potentially lengthy court battle. But refunds are not automatic, and taxpayers are facing a strict three-year statute of limitations to file for relief.
The Kwong v. United States decision covered the COVID-19 federal disaster period through May 11, 2023, plus an additional 60 days, which extended the period to July 10, 2023.
A three-year deadline means taxpayers have until July 10, 2026 to request a refund – even if the issue plays out in court for months beyond that date.
“Even if you’re not sure, once July 11 hits, you are no longer eligible. Now is the time to really be jumping on this,” Goldman told The Post.
Any taxpayer who was charged failure-to-file or failure-to-pay penalties from the government during the court-ruled disaster period would be eligible for a refund.
To request a refund, filers need to download Form 843, a two-page tax form that can be found online. The form asks taxpayers to list what kind of penalties they paid on what kind of taxes, and it’s crucial that the document is filled out accurately.
Goldman said it’s very often the case that taxpayers who are slapped with penalties were not trying to scam the system; they just made an error on their paperwork.
“Sometimes it’s just people who kind of mistakenly don’t file or it’s their first time owning a business and they didn’t realize some of this stuff was gonna factor in and they should’ve filed a separate return. Sometimes it’s by complete mistake,” he said.
When it comes to submitting a Form 843, then, it can be a good idea to hire a CPA for guidance, since simply clicking the wrong box could be grounds for disqualification, he added.
“When you’re trying to fight the government on getting some of your money back, it really can be just a worthwhile investment to spend that $500 to make sure you get back $10,000 or something,” Goldman said.
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