Many Americans might be eligible for tax refunds related to the pandemic, and the time to act is quickly running out, despite ongoing legal disputes.
In a case known as Kwon v. United States, the U.S. Court of Federal Claims determined last November that a particular tax rule about extensions for disaster filings should have included the COVID-19 pandemic, which officially lasted from January 20, 2020, to July 10, 2023.
This ruling indicates that those who didn’t file taxes or faced penalties for late filings during this time shouldn’t be penalized and may be entitled to a refund, according to tax experts.
“That’s a significant number,” Nathan Goldman, an accounting educator at North Carolina State University, remarked. He pointed out that similar situations arise for millions of people annually.
Penalties for failing to file or pay can accumulate quickly. For instance, someone usually owing $20,000 in taxes might find themselves facing an extra $5,000 in penalties, potentially making them eligible for a refund of that amount.
The penalties for not filing stand at 5% of the unpaid tax per month, capping at 25%, while non-payment incurs a 0.5% monthly charge, also maxing out at 25%. Refund amounts will vary based on the penalties incurred and individual tax details.
Though the court’s decision is not yet set in stone and an appeal from the U.S. government is possible—implying a drawn-out legal struggle—taxpayers should note that refunds aren’t automatic. There’s a strict three-year window during which they must file for relief.
The ruling has extended the federal disaster period due to COVID-19 to May 11, 2023, with an additional 60 days added, bringing it to July 10, 2023.
This means taxpayers have until July 10, 2026, to request their refunds, even if the legal issues are still pending beyond that timeline.
“It’s crucial to act before July 11th, as you’ll miss the opportunity,” Goldman advised.
If you received fines from the government for not filing or paying during the designated disaster period, you might be eligible for a refund.
To initiate the refund process, filers need to download Form 843, which is a simple two-page document available online. It requires taxpayers to detail the types of taxes and fines paid, so accuracy is important.
Goldman noted that many who face these fines aren’t deliberately trying to cheat the system; they just might have made a mistake.
Oftentimes, it could be an individual who didn’t file correctly or someone new to running a business who wasn’t fully aware of the tax requirements. Mistakes happen.
He suggested consulting a CPA when filling out Form 843 since even a small error can lead to disqualification.
“Spending that $500 on professional help might lead to recovering $10,000 or more, which makes it a smart move,” Goldman concluded.
