Mistakes That Will Wipe Out Your Tax Refund

1040 income tax form and w-2 wage statement with a federal Treasury refund check.
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Last year, the IRS doled out more than $282 billion to nearly 103 million taxpayers for an average tax refund of $2,874. For many American households, that kind of cash is the biggest influx of money they’ll get all year long – -and many taxpayers have come to depend on it. Many others, however, receive less than they should — far less, in many cases or, even worse, nothing at all. A lot of times, refunds are diminished or wiped out altogether because of unforced errors made by taxpayers who committed preventable mistakes when filing their returns. Taxes are complicated and mistakes are easy to make, but by avoiding these big, common pitfalls, you can go a long way in securing everything you’re owed.

Read: What Are the 2020-2021 Federal Tax Brackets and Tax Rates?

Doing Messy Math

The IRS reports about 2.5 million math errors on tax returns in a given year, according to TurboTax. Those errors include things like botched arithmetic and choosing the incorrect number on a tax table. No matter the reason, shoddy math leads to surprises come refund time. In most cases, the IRS will inform you of your errors and let you know to plan for a different amount than what you were expecting.

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Find Out: Tax Year Deadline Dates You Need To Know

Guessing Which Deduction Is Best

The 2017 Tax Cuts and Jobs Act dramatically increased the standard deduction, which lowers the amount of your income that the government can tax. For the tax year 2020, it’s risen all the way to $12,400 — times two for married couples filing jointly. That’s a big chunk of change — and the standard deduction is certainly simpler and easier — but if you have a lot of individual deductions, it’s worth tallying them up to see if itemizing can reduce your taxable income even more.

Be Prepared: All the New Numbers You Need To Know for Planning Ahead on Taxes

Missing Out on Credits

Whether you itemize or not, deductions reduce your taxable income. Credits, on the other hand, directly lower the amount of tax you owe on a dollar-for-dollar basis. Credits can add big bucks to your refund — but only if you claim the credits you have coming to you. Among the most common credits are:

  • Earned income tax credit
  • Child tax credit
  • Child and dependent care credit
  • Credit for other dependents
  • A variety of education-related credits for students or those financing their education
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Did You Know: Most Popular Things To Do With Your Tax Refund — and How To Do It Smarter

Choosing the Wrong Filing Status

All taxpayers will file their returns under one of five filing statuses:

  • Single
  • Married filing jointly
  • Married filing separately
  • Qualifying widow(er)
  • Head of household

Your filing status determines things like your tax rates, brackets and standard deduction. Filing under the wrong status is almost certain to delay your return and is very likely to impact your refund.

Tax Help: How To Fill Out a W-4

Defaulting on Federal Debt

The federal government has a tool at its disposal called the “income tax refund offset.” That’s a fancy way of saying that the feds can snatch your refund if you default on federal debt like a student loan. Refunds can’t be taken to satisfy private debt. The government can take your entire refund if you owe that much or more, but they have to warn you in advance if an offset is imminent. There’s also the Treasury Offset Program (TOP), which can intercept some or all of your refund to collect delinquent debts for things like child support that you may owe to federal or state agencies. TOP swiped more than $10.4 billion from taxpayer refunds in 2020.

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Last updated: Jan. 29, 2021

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.
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