Unexpectedly large tax refunds – a blessing or a curse?
Are you eligible to receive a tax refund this year? If you are, then here is something you definitely need to know. You shouldn't cash the check or use the money as soon as it hits your account, especially if it is way larger than what you expected.
What Should You Do When the Unexpected Happens?
In rare cases where there is a glaring discrepancy between the amount specified in your 1040s and the amount printed on your IRS check, the best thing for you to do is to make sure that the money rightfully belongs to you. Don't worry, you will know it for sure since the IRS will send you a notice explaining the discrepancy within a few days of receiving the check.
When something is not clear to you, you should consider getting some professional advice to better understand what is really going on. You can also call the IRS at their main toll-free number or visit your local Taxpayer Assistance Center to clear things up.
If you are sure that the money is rightfully yours, then by all means, enjoy it. If not, then you better wait until the IRS clears it up. You may not be aware of it, but getting a tax refund doesn't necessarily mean that your tax return has already been audited and approved. Remember, the IRS generally has three to six years to audit your returns. In cases where there is reason to suspect that there is an intention to commit fraud, the statute of limitations can even be extended indefinitely.
If your unexpectedly large refund was made in error, the IRS will definitely want its money back – with interest. This may prove to be a difficult task if you have already spent the money, so don't spend it. Resist the urge to spend that money until you are sure that the IRS will not hold you legally liable for it.
Why Do These Things Happen?
There are a lot of reasons that may explain why you and the IRS came up with different figures. It is possible that math errors or incorrect credit and/or deduction claims were made while computing your tax bill. It is also possible that estimated tax payments were not properly credited and that federal debts such as spousal and/or delinquent child support or unpaid student loans were collected from your refund. Entering your Social Security number incorrectly can also cause confusion.
While receiving an unexpectedly huge tax refund may seem heaven-sent, you should resist the urge to spend it until you are sure that it rightfully belongs to you. Otherwise, you may find yourself in serious trouble!