When (and When Not) to Amend Old Returns

In most cases, you have three years in which to submit an amended return to claim a refund of overpaid taxes. But there are situations in which you can recoup taxes paid without submitting an amended return. And there are other situations in which you may need to amend a return even though no refund is involved in order to limit interest and penalties.

When to file an amended return

You need to take affirmative action—file an amended return—in certain situations:

• Changing your filing status. If, for example, you claimed “single” status but now know you meet head of household status, you can amend the return to take advantage of more favorable tax rates and other breaks. Married persons filing separately may change to joint return status, but those claiming married filing jointly cannot change that status after the due date of the return.
• Omitted deductions or credits. If you failed to claim write-offs to which you are entitled, you need to file an amended return to obtain a tax refund. The IRS will not do this automatically.
• Net operating losses. If you incurred an NOL in 2018, 2019, or 2020, you can carry it back for five years to offset income in those years and obtain a refund. You need to file an amended return for each carryback year or use a quick refund procedure (Form 1045).
• Disaster losses. If you suffered a financial loss in a federally-declared disaster, you may choose to report the loss on the prior year’s return. If that return has already been filed, then an amended return is warranted.
• Coronavirus distributions and disaster distributions. If you took a distribution from a qualified retirement plan or IRA and are permitted to redeposit the funds within three years, you need to file an amended return to recoup the taxes paid on the distribution in the year it was made.
• Bad debts or worthless securities. It sometimes takes a while to determine that you have a debt owed to you that’s gone bad or hold securities that have become worthless. You have seven years from the due date of the return for the loss year to file and amended return and claim a refund.
• Overpayment based on claim of right adjustment. If you must repay more than $3,000 that you’ve already included in income because, at that time, it was believed you had an unrestricted right to it, file an amended return to recoup the overpayment. The repayment is deductible as an “Other Itemized Deduction” on Schedule A; this is a miscellaneous itemized deduction not subject to the 2%-of-AGI floor, so it is not barred in 2018 through 2025.
• Omitted income. If you failed to report income, you should file an amended return to include it. Income reported on an information return, such as Form W-2, Form 1099, or Schedule K-1, will ensure that the IRS finds the omission and bills you for interest and, where applicable, penalties. The sooner the amended return is filed, the smaller the interest and penalties will be.

When NOT to file an amended return

There are some situations in which an amended return is not required:

• Math errors. If you discover you made a mistake, the IRS will catch math errors. If you owe taxes, you’ll get a bill. But if you find an error in your favor, file an amended return to obtain a refund.
• Unemployment benefits reported on 2020 returns. If you filed your return before the tax law made up to $10,200 in 2020 benefits tax free for those with income below set limits and included those benefits in income, you don’t need to do anything. The IRS will make adjustments to your 2020 return.
• Recovery of tax benefit items. If you recoup money that’s been previously deducted, you don’t have to file an amended return to back out the deduction. You simply report the recovery as income in the year it’s received. Recovery items include:
  • Previously deducted medical expenses
  • Refunds of state and local taxes (to the extent they produced a tax benefit in the year paid)
  • Tuition refunds that reduce an education credit
  • Previously deducted bad debts
  • Recovery of a medical insurance rebate
  • Credit for an overpayment based on a claim of right adjustment. Instead of filing an amended return (explained above), you may claim a tax credit for the adjustment in the year of repayment.

Note: A deduction for moving expenses (currently only certain military personnel can take the write-off) deducted before meeting the time test must be repaid if the test is failed. There’s a choice: amend the return for the year the deduction was claimed or report the income in the year the time test is failed.

Conclusion

For amended returns, use Form 1040-X. If you need to file an amended return for 2019 or later, you can do this electronically. For earlier returns, you must file on paper.