The IRS sometimes overcharges money and can be recovered. The IRS does not act to return the funds and in order to get back the money due, a request for a refund must be submitted. If it turns out that a citizen is entitled to a tax refund, the tax authorities will return it directly to your bank’s accountant and even pay interest on these amounts.
1. So who deserves a tax refund?
Any person who overpaid income tax during the year is entitled to a tax refund. The tax amount is reviewed at the end of the tax year and then the total tax actually paid by the person is examined against the tax the person had to pay.
Tax returns are mainly due to the fact that at the monthly level, the withholding tax by the employer does not correspond to the employee’s annual income. This discrepancy arises among salaried employees mainly due to discontinuity in work or due to non-declaration or errors in the various deduction and exemption clauses to which the employee is entitled.
2. How do I know if an employee is entitled to a tax refund?
The IRS annually publishes the list of exemptions, deductions, tax credits and credits for that tax year. On the basis of this list, it is possible to check and know the amount of the tax refund due before submitting the return to the Income Tax Authority.
For this purpose, all relevant documents must be collected (forms 106, National Insurance documents regarding pensions as well as changes in status, approval of deposits into funds and provident funds, etc.).
The initial calculation can be made using the calculator of the Income Tax Department or other calculators published on the Internet.
You can also contact a professional (lawyer, tax advisor or accountant) who will check your eligibility. It should be noted that paying a professional for the purpose of preparing an income tax return is a tax-deductible expense that reduces taxable income and the tax rate you pay.
3. In what cases should I check whether I am entitled to a tax refund?
The common cases in which an employee deserves a tax refund are:
- Part-time work during the year (due to unemployment, unpaid leave, job exchanges and other cases of part-time work).
- Change of place of work or employer during the year, without performing tax coordination.
- Working abroad while working in Israel during the year.
- Medical problems of the employee or his family members.
- Change in personal status such as: marriage, birth of a child, divorce, payment of alimony, etc.
- Moving to a national priority area (development cities, Galilee, Golan Heights, Negev, etc.).
- New immigrants during the first three years in Israel are entitled to tax refunds.
- Veterans are discharged for two years from the date of the end of their compulsory service.
- Deposits into a pension fund, provident fund, safe to live independently, in respect of a salary without social benefits.
- Those who have completed a bachelor’s degree or received a teaching certificate since 2005.
- Those who donated over NIS 190 to institutions recognized for section 46.
To the IRS Guide to Filing a Tax Refund
4. Will the IRS notify me of my eligibility for a tax refund?
Not. The IRS annually publishes the list of exemptions, deductions, tax credits and credits for that tax year. This list is the basis for calculating the annual tax.
The IRS usually does not require landlords to submit an annual return to the IRS and suffices with a sample test.
5. Do I need to submit a full annual return to the IRS in order to receive a tax refund?
The Income Tax Department has a tax return form for employees (Form 135). This form is simpler than the complete income tax return. This form is intended for employees who wish to receive a tax refund and not for the self-employed or for those who must submit a full return.
An employee earning a high salary (in 2018 over NIS 643,000) must submit a report to the Income Tax Authority.
In addition, the Income Tax Offices hold training sessions from time to time and there are assistance stations in filling out the annual report to the Income Tax Authority.
6. Is there a time limit or statute of limitations on a tax refund application?
The statute of limitations and time limit on filing income tax returns and receiving tax returns is limited to up to 6 years from the end of the tax year for which an income return was filed. In other words, in 2021 it will be possible to receive a tax refund for the tax year 2015 and later, and not for earlier years.
Those who are not required to submit a report do not have deadlines prescribed by law and therefore the report may be submitted subject to the 6-year limit throughout the year.
7. What documents should be attached to the report?
Documents regarding income from wages (Forms 106), other income, certificates from the National Insurance Institute for salary replacement benefits (such as unemployment benefits, maternity allowance, etc.), certificates regarding place of residence, Form 161 for compensation, medical certificates, the required personal deductions and credits (such as certificates of life insurance or provident funds that were not paid as part of work as an employee), original receipts for contributions, etc. must be attached.
The spouse’s data must also be attached to the report, since the examination of eligibility for a tax refund is carried out on the income of both spouses.
8. Will the IRS compensate me for paying too much tax?
The Income Tax Ordinance states that the tax refund will be linked to the index and bear an annual interest rate of 4% from the month of January following the said tax year. Interest and linkage differentials are tax-free.
In other words, those who are entitled to receive a tax refund will also benefit from interest and indexation on the tax returns, as a kind of tax-exempt savings plan.
9. Is there an amount below which you should not file an income tax return?
Although the law is a penny and the income tax is obligated by law to handle every report submitted to it and return any amount, it should be noted that a one-year refund in the amount of one hundred shekels will probably not be economical to carry out in view of the time and investment in preparing the report.
10. Is it possible to deduct amounts between different tax years?
The calculation of the tax liability is annual and is based on income from salary, labor income or their substitutes and other income received in that year, and therefore income cannot be transferred between the different tax years.
11. Do I risk “annoying” the IRS when I request a tax refund? Could this result in the IRS conducting a full audit or having to pay more tax?
Submitting a report with complete and correct data does not “annoy” the IRS and does not cause the tax assessors to put the taxpayer on a “black list”. Of course, anyone who has acted according to the law over the years does not risk submitting a return for tax refunds at all, and he has nothing to fear. And this is a registration for tax refund purposes.
Every tax return undergoes examination and approval by the Income Tax Authority. The obligation to check and verify before submitting the report that all the data provided in it is correct and complete applies to the person submitting the report.
A preliminary examination of the data will make it possible to assess with near certainty whether the employee is entitled to a tax refund or whether he must pay additional tax.
12. How long does it take to get the money back from the IRS?
The law stipulates that a tax return must be made within 90 days or by July 31 of the tax year following the tax year for which the return is filed, whichever is later.
Sometimes the examination of the report is delayed even beyond that, but it is important to mention that the IRS pays interest at a rate of 4% and indexation on the tax returns until the actual refund date.
13. How does the IRS return the money?
The tax refund is supposed to be made directly to the bank account of the person submitting the report. The bank account details are provided together with the report, so it is recommended to make sure that the details appearing in the report are correct and accurate.
Note: The above information does not constitute a substitute for professional and legal advice and the aforesaid should not be relied upon without consulting with a tax advisor, accountant, lawyer, who deals with the field before taking any action or making any decision. This is true only at the time of writing, and their correctness may change from time to time.
