Handling Tax Errors

Whether it is because a taxpayer misunderstood the rules, made a mistake in their math, or simply mistyped an entry into their tax software, many federal income tax returns contain errors. Sometimes, correcting the errors results in an increased tax bill, but fixing mistakes can also benefit a taxpayer. For example, there are times when correcting an error will increase the size of your tax refund.

The Internal Revenue Service understands that taxpayers sometimes make mistakes on their returns and has provided them with ways to correct them. If the error resulted in you paying less tax than you should have, taking steps to correct them can still help you financially, because reporting the error to the IRS will often keep the agency from imposing additional penalties and interest or taking actions to collect on your unpaid tax bill. 

If you have a good history of tax compliance, the IRS may let you take advantage of a first-time penalty abatement that will allow you to avoid paying any penalties at all.

When Should You Correct a Return?

The good news is that you are not always required to file an amended return to correct an error you have made. If you make a math error, the agency will correct it. If you forgot to include required IRS forms and schedules with your filed return, the IRS often contacts you and asks you to submit them.

The IRS says you should file an amended return if you reported incorrect information for items like income, deductions, credits, dependents, or filing status. In some cases, the IRS will already be aware of your mistake, so it's good to get it corrected before the agency can take additional action. 

For example, if you underreport income from your job, the IRS will discover the error when it first processes the return because it will find that your reported income does not match the amount your employer reported on your Form W-2, Wage and Tax Statement.

Correcting an Error

If you discover you have made an error on Form 1040, U.S. Individual Income Tax Return, you have already filed, you should use Form 1040-X, Amended U.S. Individual Income Tax Return, to correct it. While this entails filling out and submitting another tax form, you can take almost all of the information necessary to fill out Form 1040-X from the Form 1040 you want to correct, substituting the correct information for any mistakes.

For years, the IRS required that all Forms 1040-X be submitted by mail. However, the agency updated its e-filing system to accept electronically submitted versions of the forms for the 2019 tax year. If you used tax software like TurboTax to submit your original Form 1040, there is usually no additional fee if you use the same provider for filing a Form 1040-X.

How Long Do You Have?

In most cases, if you want a refund, Form 1040-X must be filed within three years of filing the return being corrected. That means if you filed after the due date or got an extension, the amended return is due three years from the date the original tax return was actually submitted.

If you are not seeking a refund, you can file a Form 1040-X more than three years after the original return was filed, but the IRS rarely reviews returns that were filed more than three years ago unless they suspect you made a substantial error.

Can the IRS Owe Me Money?

Sometimes, correcting an income tax return can work out in a taxpayer's favor. If you discover that you were entitled to a tax deduction or tax credit you didn't claim, file an amended return and the IRS will refund the amount due after the agency has processed it. Many taxpayers who discover they were entitled to claim the child tax credit will file amended returns to claim it for prior tax years.

It can take as long as 16 weeks for the IRS to process an amended return, so it may be a while before you see your refund check. To track your amended return after it was filed, use the IRS's Where's My Amended Return webpage. However, an amended return can take up to three weeks to show up in the IRS's computer system.

What if I Owe the IRS?

If your amended return shows that you owe the IRS money, you will need to make arrangements to pay your tax liability. If you don't have the funds available to pay your tax bill in full when you file the amended return, you can still work out a payment plan with the IRS.

Still Have Questions? Talk to a Lawyer

If you discover you have made a significant error on your tax return and need help resolving it, a local tax attorney can help. A tax attorney is a tax professional who can help you correct any errors you made and ensure that resolving the issue does not result in you paying additional penalties and interest. An attorney can also assist in requesting a penalty abatement, if you qualify. If the IRS has already reached out to you about your error, an attorney can represent you and ensure your rights are protected.