Receiving a letter from the Internal Revenue Service (IRS) informing you that they owe you more money than reported on your tax return can be both surprising and welcome news. It is essential to understand the reasons behind this unexpected windfall and how to proceed in order to ensure you receive the money owed to you. In this comprehensive guide, we will explore the possible explanations for this situation, the steps to take for verification and claiming the additional funds, and finally, some advice on how to handle unexpected tax refunds.
Firstly, it is important to note that the IRS is responsible for collecting taxes and ensuring that taxpayers comply with the tax laws of the United States. As part of this process, individuals and businesses are required to file their tax returns annually, accurately reporting their income, deductions, and credits. Based on these returns, the IRS calculates the amount of tax owed or, in some cases, refunds due.
Generally, taxpayers anticipate receiving a refund if they have overpaid their taxes throughout the year, either through excess tax withholding or estimated tax payments. However, it is not uncommon for taxpayers to overlook certain deductions, credits, or changes in their circumstances that could result in a larger refund than initially anticipated.
When the IRS acknowledges that you are entitled to a larger refund than stated on your tax return, it means that after their review, they have identified additional deductions, credits, or changes to your income that were not considered in your initial filing. This can occur due to various reasons, such as typographical errors, missing forms or schedules, unclaimed deductions or credits, or even changes in the tax law that went into effect after you filed your return.
To ascertain the accuracy of the IRS letter and claim the additional funds, you must follow the steps outlined in the communication. Generally, the letter will provide specific instructions on what actions you need to take. It is crucial to carefully read the letter to understand the nature of the adjustments made, the amounts involved, and the timeframe within which you must respond.
Upon receipt of the letter, you should gather all the necessary documentation related to the tax year in question. This includes your original tax return, any supporting schedules or forms, wage statements (W-2s) or income reports from self-employment or investment activities, as well as any other relevant financial records. Having these documents readily available will help facilitate the process and ensure accuracy when responding to the IRS.
Next, carefully review the adjustments mentioned in the letter. The IRS will typically outline the specific changes made to your return that resulted in the increased refund amount. This may include additional deductions or credits you were eligible for but failed to claim initially, changes in your reported income or expenses, or corrections to errors either in your favor or against you.
To validate the adjustments made by the IRS, it may be necessary to consult with a tax professional, such as a certified public accountant (CPA) or an enrolled agent (EA). They can review your original tax return, the supporting documentation, and the IRS adjustments to ensure their accuracy. Additionally, working with a tax professional can help you understand how the changes impact the overall tax situation and provide guidance on any further actions you may need to take.
After reviewing the adjustments and validating their accuracy, it is crucial to promptly respond to the IRS letter. Failure to do so within the specified timeframe may result in delays or even the potential loss of the additional funds owed to you. Generally, the letter will provide instructions on how to respond, which may include completing and returning a specific form, providing additional documentation, or even simply signing and returning a copy of the letter itself.
When responding to the IRS, it is advisable to keep copies of any documents or correspondence sent to them. This will serve as proof of your actions and facilitate future inquiries or follow-ups. Additionally, it is essential to track and retain any documentation related to the additional refund. This includes copies of your revised tax return, the IRS adjustments, along with all communication with the tax agency.
As mentioned earlier, unexpected tax refunds can be a pleasant surprise, but it is important to handle them responsibly. While it may be tempting to view this unexpected money as extra disposable income, it is wise to consider using it wisely to improve your financial situation. Some possible options include paying off outstanding debts, saving or investing the funds for future goals, or contributing to your retirement accounts.
In conclusion, receiving a letter from the IRS indicating that they owe you more money than reported on your tax return can be an unexpected and delightful surprise. However, it is essential to take immediate action to verify the adjustments made by the IRS and claim the additional funds. By carefully reading the letter, gathering the necessary documentation, validating the adjustments, and promptly responding to the IRS, you can ensure that you receive the money owed to you. Finally, by responsibly managing unexpected tax refunds, you can utilize the additional funds to improve your financial well-being and work towards achieving your long-term financial goals.
Just keep everything they sent you, along with your return, for 7 years.
If you want to investigate why they think your tax return is wrong in your favor, you should download your IRS tax transcripts and see what they changed.
Just FYI, the IRS only deals with your federal taxes. If you’re getting something from NY, that’d be from the state department of revenue (or whatever NY calls theirs).
Did the letter say *why* they think your tax bill is lower than what your return? Something like a bad calculation, typo on a number, income you reported as taxable when it shouldn’t have been, some amount of paycheck withholding not included on the return, etc?
Tax agencies have processes (mostly automated nowadays) that consolidate the records they receive about you and compares those with what you filed on your return. Any discrepancy usually gets a letter like this generated to get things properly settled up, whether that’s needing more payment from you or returning unnecessary payments back as a bigger (or additional) refund.
Despite their reputation, tax agencies mainly just want everyone to pay the “right” amount (under relevant law / situations). If you paid them more than you owed they’re pretty happy to give it back. They don’t always do absolutely everything to fix every mistake in their favor, but in general its not too bad.
We had similar. Had to file as non residents in a certain state and then had to prove we aren’t residents in that state and only work there occasionally (it was 5 days last year for example). They had withheld state taxes as full time residents for the year (this was a payroll issue that is ongoing), while we should have only owed for the days that we worked there. It was a good amount of money. Because the audit took so long, that money earned interest. We got back our payroll taxes plus the earned interest along with a letter. Of course, next year, we’ll get to pay income taxes on that interest.
Adjust your copies of that income tax return to reflect the change.
Anyone else getting potential scam vibes from this? Like someone impersonating the IRS, sending a check with the “extra” and then sending another letter like “oops, actually you were right the first time, send the extra back”?
The IRS is a federal agency and has nothing to do with your NY state tax.
Was the letter actually from the NY Department of Taxation and Finance?
Did the letter explain the changes that they made? Does the explanation make sense?
Who sent you this letter (irs or NY)and how did you receive your money? Seems like a potential scam
If you’re concerned about a potential scam, you can download your account transcript by starting here: https://www.irs.gov/payments/your-online-account ; once you have your account set up and you’re logged in, you’ll click “tax records” on the top bar, select “get transcript” on the next screen.
Select “account transcript” from the year you’re interested in (likely 2022) and compare with your return to see if it’s been adjusted.
I would investigate why they say you should get more, and double check that they’re right. I once got a letter with a check from the IRS where they said that I qualified for a specific tax credit that I didn’t claim. I just thought “hey cool, and extra $500!”. About eight months later I got another letter from them saying that I didn’t qualify for that tax credit and shouldn’t have claimed it, and now I owed the whole tax credit back, plus interest. I was really mad! I didn’t say I should have gotten that tax credit, they did!
Eventually I figured out that my parents claimed me as a dependent, but I had said that nobody could claim me. The tax credit wasn’t available for dependents, so once they figured it out, they took it back. Not fun, since I was a broke college student and had already spent the money!
So definitely make sure you should actually get the money before spending it.
Best way to find out is to google a number for the iRS and call them and ask them about it.
I had this happen many, many years ago. I did my taxes last minute on the 15th, probably wasn’t paying very close attention, wrote a check and mailed it off.
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They sent that check back and my refund amount too.
You are very probably in the clear, but do keep the records, including the explanation of why they gave you more money back.
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One reason to keep this paperwork is that when you do your taxes next year, you should check and see if there’s anything from the letter, etc., that will change how you do your taxes. (I tend to follow last year’s footprint, by and large, so that I don’t forget anything. Of course I try to stay alert to changes)
You’re technically fine not doing anything, but you really should go check your federal and make sure the mistake wasn’t to your federal AGI.
Keep what they send you forever otherwise they’ll come to collect later when you have dementia. It’s a scam you can benefit from as of right meow.
Enjoy, it’s very rarely NY finds errors in the taxpayer’s favor.
Do you live in Monopoly the game?
In the letter should be the reason for the discrepancy. I have received a letter and check from the IRS before when they owed us
If the IRS has a reason, they can go back indefinitely…. I know.
Don’t spend the money until you know it’s yours 100%.
If you think it was given to you in error, find a way to send it back. They can and will assess interest on money given to you in error and it can sometimes take them a long time to figure it out.
Keep any paper work for vonyto itipns you make to a fund or stock with already taxed money forever. You will need it to establish a basis or you may pay the tax again many years later!
Go to a CPA and have them advise you.
Definitely hold on to your paperwork. One year (in New Mexico) the state tax department decided I’d overpaid and gave me a $700 refund. Then a few years later they changed their mind and decided that I owed them $700 + an underpayment penalty + interest. *That* was a pain in the ass to clear up.
Two years ago, I was notified that I owed 800 more than I paid. Sent them the 800. A month later I received a check for 1400 with an explanation that I had overpaid. Deposited the check. A month later I received a new demand for 300. Sent the 300. Two months later I received a check for 450. Deposited the check and Spent the next two months just waiting for the next Damn thing.
Last year no such silliness.
I’m sure it’s your money. Obviously there was a mistake when you filed. I’m sure it was included with the letter, compare it to your copy from TT to see where you made the mistake so it doesn’t happen next year.