Can one have prior years’ United States income tax refund carried over to later years?

Question

Forms 1040 and 1040-NR allow overwithheld tax to be refunded via direct deposit onto a U.S. bank account or mailed as a check. However, there is a time limit for direct deposit. For example, see the instructions for 2019 tax returns for Form 1040 and for Form 1040-NR:

If any of the following apply, your direct deposit request will be rejected and a check will be sent instead.

• […]
• You file your 2019 return after November 30, 2020.

I want to regain overwithheld tax for the last three years: 2017–2019. (Tax paid earlier is no longer refundable.) The time limit makes it impossible to receive this money via direct deposit.

In my case, I have no ability to cash in a check as I do not reside in the U.S. (nor ever have) and checks are not accepted in my country, so I want to receive the money in some other way. (I am a U.S. “nonresident alien”, and my taxable income comes from dividends of publicly traded US company stock. Form 1040-NR is specifically designed for nonresident aliens, but it still only allows refunds to be mailed as checks past November 30.)

Besides direct deposit and check, the form allows another way of handling the refund: I can choose to have it “applied to [my next year’s] estimated tax”. I can then treat it as overpaid tax in the next year’s form. By chaining this far enough, I could have all my refundable tax carry over to 2020 or 2021, where I could get it all refunded to my bank account by filing a tax return within the direct deposit window.

• Is this allowed beyond November 30 and, more generally, for the whole three years that the tax return can be filed as a prior year return?

• What is the cheapest and quickest correct way to use this for multiple prior years? Do I have to submit 1040-NR for each year in order, wait for it to be processed, and only then submit the next year’s return? Or can I submit all three years’ forms (or four years’ together with the upcoming 2020 form) simultaneously? In that case:

  • Can/should I compute and specify the accumulated amount from earlier years in each year’s form’s “Payments: 201X estimated tax payments and amount applied from 201Y return” field, or should I leave this field empty?

  • Accordingly, can I submit the forms for 2017–2020 simultaneously (in early 2021) and immediately have the total amount refunded onto my bank account, or will the prior years’ accumulated refund have to wait until the 2021 tax return in 2022?

  • Can/should I send the forms all in a single envelope?

    Note: I do not have an ITIN yet, so I will need to send at least one of the tax returns together with Form W-7 to apply for my ITIN.

There is a similar question for Canada, but I am interested in U.S. tax returns.

Answer 1

First: you have an account with a US bank, but you can't deposit a check by mail and/or a smart-phone app? Every bank I know about strongly promotes the latter, and although less enthusiastically I'm pretty sure they all support the former, especially during COVID (although if we're lucky that may no longer be an issue by the time you finish this). Anyway ....

Is this [applying overpayment to next year] allowed beyond November 30 and, more generally, for the whole three years that the tax return can be filed as a prior year return?

I think so, although I've never tried it (nor has anyone I know). It's possible they may apply it to the next year at processing time -- e.g. your 2017 refund will become an estimated payment for 2020 or maybe even 2021 rather than 2018, so your 2018 refund will only be for 2018 not 2017 plus 2018 -- but it will also become a payment for 2020 (or 2021) adding to the 2017 refund, and so on; obviously this ends up giving you the same total as the chaining method.

Do I have to submit 1040-NR for each year in order, wait for it to be processed, and only then submit the next year’s return? ....

I would recommend this, at least if they do allow the application to a back year, which you'll only find out after doing at least one. Once, some time ago, I needed to amend multiple years all at the same time (because some of the originals had been delinquent -- oops!), where the later years depended on changes to carryouts from the earlier years (though different carryouts than the one you want), and to beat the 3-year amendment (for refund) deadline I sent them together. They got processed out of order, and as a result all years other than first were rejected due to carryins not matching their files. Submission basically refused to do anything about it and said my only recourse was Appeals (or a lawsuit in District Court), which took two years although in the end I did get my money. My experience was in the old IMF days before they finally managed to complete CADE2, which has faster processing cycles, but even so I would be reluctant to take this risk if avoidable.

And especially since you say you need to apply for your ITIN. All the W-7 instructions I've seen talk about attaching it to 'the' return or 'a' return -- i.e. ONE. I'm not sure Austin even accepts a W-7 attached to multiple returns, and if they do I sure don't trust them to get processed in correct order. You have almost 5 months to get 2017 filed, and much longer if necessary on the others, although you'd like to be as quick as you can.

Good luck.