The IRS Time Limits for Tax Credits
The time limit for the claiming of tax credits is tied to the IRS statute of limitations. The statute of limitations are essentially an arbitrary deadline even the IRS has trouble jumping.
The IRS Time Limits for Tax Credits
The Internal Revenue Service has a statute of limitations on its various functions. You have six years to file a tax return for a given year. The IRS has six years in which to audit your return from the date it is filed. The IRS also has ten years to collect any owed taxes plus penalties and interest. The ten years and six years periods are timed from the date the return is filed.
So, does this mean that if you file your tax returns and then discover at a later date that you should have been eligible for a tax credit that you never claimed, you can file an amended return and get credit for your missed credit? The answer is most certainly you can as long as you discover your omission within six years from the time the original return was filed.
Remember, the IRS has the same right to discover and correct an error through the audit process. If you have claimed a tax credit, for example, and several years later, you are audited, the IRS might discover that you were not entitled to that credit. Your tax will be adjusted accordingly and you will owe the difference. In some cases, you might owe additional penalties or interest.
For the most part, tax credits must be applied to the year in which they occur. If the tax credit is so high that it reduces your tax to zero, you are going to just lose the excess. There are a couple of taxes that can reduce your tax liability below zero and result in a refund even if you have not had any income withheld. These credits are called refundable credits. The Earned Income Credit and the Additional Child Care Credit are refundable credits.
There are also some credits that are called "carryover" credits. They allow you to carryover excess amounts to future years rather than losing them if your tax liability is reduced to zero. The Adoption Credit and the Foreign Tax Credit are two carryover credits. Of course, it is best to be aware of your tax credits and to claim them in a timely manner on your current tax return. If you discover a credit that you should have been eligible to receive and your documentation is perfect and complete, you should be able to file an amended return if you are within the six year statute of limitation period.