Few people look forward to tax season each year, but those who are expecting a large refund may anticipate April 15th more than others. So when individuals discover that the Internal Revenue Service has withheld their refund, they may be both surprised and disappointed. The truth is, there are several reasons that the agency may choose to keep all or a portion of a worker's money, and having a firm understanding of these causes may help them avoid financial or tax snafus that could force them to forfeit what they are owed.
First, the IRS is unlikely to take someone's refund without notifying them in the way of an assessment letter. In some cases, many people lose this money because they fail to respond to the letter to resolve a dispute. As a general rule, anytime a person receives correspondence from the agency, it is always a good idea to open it and obey the instructions included in the letter. If the notice says that an individual owes the agency money, there are several reasons, both tax and non-tax related, that this may be the case.
Reasons you may owe Uncle Sam
Most commonly, a person may be carrying a delinquent balance from previous tax years that may prompt the IRS to hold their refund to satisfy all or a portion of the amount. It's also important to note that this scenario does not only apply to federal taxes owed, but state liabilities as well. In cases where people have failed to file returns altogether, the IRS is permitted to file a substitute return - which allows them to mine information from W-2s, 1099s and other documents provided by employers and third parties - to make an educated guess about their liability. The authority may also withhold refunds if individuals fail to pay a balance that was discovered through a tax audit.
Individuals may also be surprised to learn that even if they paid all their taxes in full and on-time, the IRS may still hold their refunds if they carry other non-tax related liabilities. For instance, unpaid child support and federal student loans are common reasons that a person may lose out on any tax money they are owed.
Those who have been notified that they owe a balance which might result in their refund being withheld might consider contacting a tax preparer to learn more about their options.
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