Tax Returns and Tax Refunds

One of the questions we are often asked is “What are the differences between tax returns and tax refunds?”

So, if you’re thinking of filing Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in Minnesota, we thought we’d explain.

Here’s what you need to know about the differences between tax returns and tax refunds.

Tax returns

  • Tax returns are filed on an annual basis by individuals, couples, and businesses of all sizes
  • In some cases, when a person has overpaid taxes, they may be entitled to a tax refund
  • Tax returns are typically required to be filed at both the State and Federal level
  • You must file at least the most recent year’s tax returns to do a bankruptcy, unless you don’t have enough income to be required to file taxes.

Keep in mind, not everyone who files a tax return is entitled to a tax refund, in fact some will be required to pay additional taxes.

A tax refund is a disbursement made by the Internal Revenue Service or the state taxing authority to a taxpayer who can prove they are entitled to a refund

In some cases, when filing a return, a taxpayer may get a refund on the State level and not on the Federal level, or vice versa.

Additionally, there may be instances where a taxpayer owes State taxes but gets a refund on the State level.

Unfiled Tax Returns and Tax Refunds

  • Some taxpayers who are due a refund do not file their tax returns because they feel they were not required to file a return due to lower income
  • The IRS encourages those who are eligible for Earned Income Credit and other credits who are entitled to a refund to file their returns
  • You can file these returns for up to three years after their original due date and still claim the refund, in most cases

Taxpayers who have their W4s showing the amount of federal tax which has been withheld from their wages can use the interactive tool provided by the IRS to determine whether they need to file a return.

This tool may also provide valuable information about whether a taxpayer is entitled to a tax refund

When Taxes are Owed

  • Some taxpayers hesitate to file a tax return because they fear owing the Internal Revenue Service money and they are unable to pay in full
  • This should not prevent you from filing your return because failure to file could mean you wind up owing more money because of penalties and interest
  • A debt solutions attorney can help you make an offer in compromise to the IRS for any outstanding taxes owed, which may reduce your tax burden
  • Older income taxes are often dischargeable in bankruptcy.  Dischargeable means that you don’t owe them anymore, and the IRS or Minnesota Department of Revenue can’t and won’t collect anymore.
  • Income taxes are usually dischargeable in bankruptcy if it has been 3 years from the deadline to file the tax return and you filed the return yourself and  on time.  If the IRS or Minnesota Department of Revenue filed it for you, then they aren’t dischargeable in bankruptcy.

Keep in mind, if you are filing for protection under the U.S. bankruptcy code and you have unfiled taxes:

You have the right to appeal this decision, but you may wish to seek the assistance of someone who has experience dealing with these cases.  If there are some years where you haven’t filed taxes yet, it’s almost always best to file the taxes first yourself.  This way you won’t owe as much in penalties and you will get more exemptions and deductions to help lower the amount of tax that you owe.

Bankruptcy and Unfiled Tax Returns

If you are one of the thousands of consumers who are facing challenges paying your debt, you may be considering filing for bankruptcy.

If you have unfiled taxes however, this can be problematic for two main reasons:

  1. The IRS will file taxes on your behalf which could result in a claim you owe taxes when you do not
  2. If you have unfiled tax returns and owe money, you will not be eligible to have the tax debt discharged in bankruptcy
  3. The easy fix is to simply file the tax returns.
  4. One benefit of bankruptcy where the taxes aren’t dischargeable is that the automatic stay in bankruptcy stops even the IRS from taking certain collection actions like placing a tax lien or garnishing your pay or bank account.

What do do next

Taxpayers who are considering filing bankruptcy and believe they may be entitled to a refund should speak with their Minnesota bankruptcy attorney about how to best deal with the refund, so they do not lose a refund as non-exempt property.

  • Generally, you can keep the refund if your bankruptcy has been discharged, or if the refund was “earned” after you filed for bankruptcy


Now you know the differences between tax returns and tax refunds, and how they affect you, you can act accordingly.

Need help understanding how filing bankruptcy can help you with your tax bills the IRS?

At Walker & Walker Law Offices, PLLC we can help you deal with tax bills that seem out of control.

We may also be able to help you have part of your taxes forgiven by working with the IRS or by having some or your taxes discharged through the Chapter 7 Bankruptcy or Chapter 13 Bankruptcy process.

Contact our offices today at 612.824.4357 and tell us how we can help.