What If I Did Not Claim Credit in Previous Years on Federal Taxes?

by Randolf Saint-Leger

If you forgot to claim credits on a previous year's tax returns, you can submit an amended return on Form 1040X to the IRS. This means you will have to refile your taxes to the IRS for the respective years. Before taking on such an endeavor, figure out whether taking the credit alters your tax liability or increases your refund. It may not be worth the trouble of sending in an amended return.

Form 1040X

Form 1040X, the Amended U.S. Individual Tax Return, is used to make corrections on Forms 1040, 1040A, 1040EZ, 1040EZ-T, 1040NR and 1040NR-EZ. The IRS advises you to file a separate Form 1040X for every year that you are amending. An example of when to use Form 1040X is if failed to take the first-time homebuyer credit or are filing a claim as a surviving spouse. The processing time for Form 1040X is eight to 12 weeks.

When To File

For a credit or refund, you have three years from the date you filed your original return to submit Form 1040X (including extensions) or two years from the date you paid taxes. Even if you filed your return early, the IRS considers the original submission of your tax return as April 15. However, if you got an extension until October 15, but paid your taxes by July 1, the IRS considers July 1 as the filing date.

Considerations

Submitting an amended tax return may not be worth it if there is no substantial change in your tax liability or refund. You will need to figure out the tax implications by preparing the return including the missing credits to determine your tax liability. If you had your taxes prepared by a professional, she can better assess whether filing Form 1040X is worthwhile.

Penalties

The IRS assesses penalties for late payment of additional taxes owed when you file Form 1040X which can be as high as 25 percent of the unpaid amount. Other penalties include a $5,000 charge for filing a frivolous return and 20 percent of the disallowed amount of an erroneous refund claim or credit.

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