08/29/2012 05:01 pm ET Updated Oct 29, 2012

When You Should File an Amended Tax Return

Not every interaction with the IRS must necessarily induce flop sweat.

Case in point: A few years ago a friend of mine decided his income taxes had become sufficiently complicated to merit hiring an accountant. After examining a few previous tax returns, the accountant discovered my friend had claimed the standard deduction for two years when he should have itemized expenses. He filed a couple of amended tax returns and voila -- the IRS wrote him checks totaling more than $1,200.

Of course, not all tax-filing mistakes end on such a happy note. Sometimes people find out after submitting a return that their employer had sent an incorrect W-2 form, or they forgot to report self-employment income, or they incorrectly claimed someone as a dependent.

Although it's tempting to let such mistakes slide, chances are the IRS will discover the error eventually, and when they do you could be liable for interest and penalties going back to the due date of the original tax return. Worst case: You could even face criminal charges for filing a fraudulent return.

Here's a guide to when -- and how -- you should file an amended tax return:

If you discover an error on your federal income tax return (IRS Forms 1040, 1040A or 1040EZ) after having already e-filed or mailed it, you may file an amended return using IRS Form 1040X.

Line-by-line explanations and mailing instructions can be found in this document. The following rules apply:

  • Amended returns cannot be e-filed; you must submit a paper version.
  • Submit a separate Form 1040X for each year's return you wish to amend and mail them in separate envelopes.
  • Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. (Deadlines may be extended in certain situations such as writing off bad debts or worthless securities. Consult the 1040X Instructions for details.)
  • If your amended return involves changes to another schedule or form, you must attach a revised version of that schedule or form (for example, if you're revising itemized deductions, attach a new Schedule A).
  • If you're filing to claim an additional tax refund on a recently filed return, wait until you've received the original refund before filing Form 1040X. You're allowed to cash the original check while waiting for any additional refund.
  • On the other hand, if your amended return will result in you owing additional tax, file it right away to limit interest and penalty charges that might accrue. The IRS charges interest on any tax not paid by the due date of the original return, regardless of any extensions you may have requested.
  • The normal processing time for a Form 1040X is eight to 12 weeks.

You needn't file an amended return because of simple math errors -- the IRS will automatically make corrections and bill you for any additional tax required (or increase your refund). Nor must you file a 1040X if you forgot to attached tax forms or schedules to your return. The IRS will send a request if it needs them.

However, you should file an amended return if you:

  • Received additional or amended tax forms or statements from employers, banks or investment brokers after you filed your return (e.g., W-2 or 1099 forms).
  • Forgot to report income.
  • Overlooked tax deductions or credits you could have claimed.
  • Claimed deductions or credits for which you weren't eligible.
  • Didn't claim a dependent you were entitled to, or claimed someone you shouldn't have.
  • Chose the wrong filing status.

Choosing the wrong filing status can have a big financial impact. For example, if you originally filed as "single" but could have filed as "head of household," your standard deduction would jump from $5,800 to $8,700 in 2012. Also, couples who filed separately can change to "married filing jointly" in order to take advantage of tax breaks not allowed to separate filers (see my previous blog, Is the Marriage Penalty Real?). However, changing from joint to separate filing status is not allowed.

Also, people who pay state income tax should be aware that their state tax liability may be affected by changes made to federal returns. For information on how to correct your state tax return, contact your state tax agency.

One last tip: If you're going through the trouble of filing an amended tax return for a specific reason, review the entire original return carefully for any other deductions, credits or exemptions you might have missed the first time.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial adviser for specific information on how certain laws apply to you and about your individual financial situation.