How to File an Amended Tax Return & What to Do if You Made a Mistake

What does it mean to amend taxes? 

Life happens and no one is perfect. Sometimes that also applies to filing your taxes. You might have missed an important credit or deduction, made a math error, or forgot some income or another item that would have changed your tax return. The IRS is not obligated to correct your mistake, especially when you’re entitled to get money back in a refund, so it can be an open case for three years. Additionally, the IRS has three years to notify you of an error that requires you to pay more in taxes, which might increase any penalty or interest you might also owe. Ultimately, the most expedient way for you to correct any mistake you made is to file an amended return.

Furthermore, you might want to think about amending your 2020 and/or 2021 tax return specifically because a lot of tax changes happened these years that you might not be aware of – and it may have impacted your tax return in a major way. If your financial situation drastically changed, you might even be eligible for the Earned Income Tax Credit (EITC). There was also an EITC lookback provision as a part of the CARES Act of 2020, which passed in late December 2020, that had beneficial tax options for many. This lookback allows you to compare your 2019 earned income to your 2020 earned income (2021 income if you are filing your 2021 return)  and calculate the EITC amount you can receive for the credit. If you had a more favorable EITC amount based on your 2019 earned income, you can use that instead of your 2020 or 2021 earned income.

Reasons for amending a tax return

If you’ve discovered an error on tax forms submitted to the IRS, determine if you need to file an amended return. If you made a basic math error, the IRS will usually correct the error or reach out to you for more information. If you forgot a form, the IRS can add it; however, they don’t have your records, and changes made by the IRS may not be to your benefit. If you forgot a deduction or credit, you can only get the benefit if you file an amended return. The IRS doesn’t require you to claim a tax credit, only income (and expenses when you have self-employment or rental property).

Here are some reasons why you might need to file an amended return:

• Changing to a more beneficial filing status
• Including income left off originally such as your unemployment income
• Not claiming all your dependents in tax years prior to 2020
• Not claiming all the credits and deductions you are eligible for
• Making changes to any deductions or correcting a credit
• Adding credits or deductions you are now eligible for based on IRS correction to taxable unemployment compensation

What if I made a mistake on my tax return?

If you made a mistake on your tax return, it’s not the end of the world and it can be corrected. You just need to fix the error so it doesn’t become an even larger issue – like a tax lien or levy.

• A lien occurs when the IRS assesses a tax debt or liability against you, and your spouse, and sends you a bill. Typically, it gets to a lien situation if you refuse to pay and a levy if you neglect or ignore the notice or simply refuse to enter into an agreement to pay the IRS.
• A levy is a legal seizure of your property to satisfy a tax debt. A levy can take your property or property someone else holds for you such as wages, retirement accounts, bank accounts, etc., and in very rare circumstances, can even seize and sell your vehicle(s), real estate, and other personal property.

If you amend your tax return and then owe the IRS more money, but don’t have the funds to pay the bill, you can enter into an Installment Agreement with the IRS. This is a payment play that’s typically divided into short and long-term categories.

Tax credit amendment filing 

Sometimes after you’ve filed your tax return, you learn about tax credits you may have qualified for but hadn’t taken advantage of. If that’s the case for you, you can file an amended return and claim every credit you’re eligible for, and left off your original return. For example: did you receive all of your Economic Impact Payments, also known as stimulus checks, in 2020? If you didn’t and you were owed more, you can claim a Recovery Rebate Credit to get the remainder. The EIP, or stimulus payments, were actually a prepayment of the Recovery Rebate Credit.

If you had an additional child(ren) in 2020 that was not on your 2019 or 2018 tax returns, you can claim the Recovery Rebate Credit and might want to consider amending your 2020 tax return if you didn’t claim it. This would be for any taxpayer who had a child, fostered a child, or adopted a child during 2020. Additionally, this includes a child claimed by the other parent in 2019 and claimed by the taxpayer in 2020 – the parent claiming the child in 2020 may be eligible to claim the Recovery Rebate Credit on their tax return while the other parent got the stimulus payment for the child based on their 2019 tax return.

Filing for an amended return

To file an amended return, you must follow several steps. Starting with using the current form 1040X, which covers changes to the forms 1040 and 1040SR. This can be done electronically. 

On this form, you’ll need to:

• Enter the amount from the original return or as adjusted by the IRS
• Enter the NEW correct amount
• Show the difference between the two amounts
• Explain each change by line: This may seem complicated, just like fixing any mistake at work or at home -- so be careful

When you send your amended tax return to the IRS, you also need to include copies of all other schedules or forms that have changes, any new forms created, and any W-2s or 1099s received after the original tax return was filed. If a form was changed between the original or amended returns, write “AMENDED” at the top of the changed form. Make sure you include any NEW W-2s or 1099s reported on the amended return, but DO NOT include W-2s or 1099s that you sent in with your prior return.

It’s also important to know that if you amend your federal return, you must amend your state return. If you forget this step, it could cause unnecessary issues for future tax returns.

The statute of limitations for filing an amended return is three years from the due date of the originally filed tax return (or the filing date if filed after the due date) or two years from the date the taxes were paid. This is why it is important to keep good tax records.

Finally, you should know that it can take up to 16 weeks, or four months, for the IRS to process an amended return. And states can take just as long. Another thing to know: If you are waiting for a refund from your original tax return – don’t file your amended return until AFTER you receive the refund. But, if you’re filing an amended return because you owe the IRS or state more in tax, you should file your amended return and pay the tax as soon as possible. This will limit interest and penalty charges.

This won’t be a quick process, but by working with an experienced Tax Pro at Jackson Hewitt, it may be an easier process than going it alone. Find a location near you. You’ll also be able to track the status of your amended tax return within three weeks of the filed date with the “Where’s My Amended Return” tool on IRS.gov.