WHY IS THE DELAY HAPPENING?
On December 18, 2015, Congress passed the PATH (Protecting Americans from Tax Hikes) Act which made over 20 tax provisions permanent, including tax credit expansions to the EITC, ACTC, and American Opportunity Tax Credit (AOTC) that were set to expire in 2017. The PATH Act also requires a change in the issuing of EITC and ACTC refunds.
Beginning in 2017, no refund will be made to a taxpayer before February 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return. This will allow the IRS to verify income reported on those returns since employers are now required to file W-2 forms and 1099s by January 31 (previously they had until March).
Most refunds are expected to be issued within 21 days of processing. If the IRS identifies significant mismatches between the income information provided on the return and provided by employers, there can be additional delays as the IRS seeks to resolve the mismatch.
WHAT DO TAXPAYERS NEED TO KNOW?
- File as you normally do. You do not need to change the way you file your tax return, including where you get your taxes done.
- The delay applies to all methods of tax filing – Online and Paper by a commercial tax preparer, or self-preparation. No one can provide your refund before February 15. There are no exceptions.
- The purpose of the refund delay is to help protect you and your refund.
- Beware of offers of loans against delayed refunds, such as a loan on a refund claim based on a year-end pay stub instead of a W-2. Loan fees are expensive and the return may be inaccurate without all income information, but the loan must be repaid.
- While the delay applies specifically to tax filers claiming the EITC and ACTC, it will affect your entire refund, including refunds based on over withholding or other tax credits. You cannot receive a partial refund.
- Everyone is not affected by the delay. Taxpayers claiming the EITC and ACTC who file returns after February 15 will not be impacted. Additionally, early filers who are ineligible to claim the EITC or ACTC will not be affected. Refunds based only on over withholding or other tax credits will not be held.
Tax Season and Refund Delays
The IRS anticipates more than 153 million tax returns will be filed this year. Taxpayers will have until Tuesday, April 18, 2017, to file their 2016 tax returns and pay any taxes they owe, thanks to the Emancipation Day holiday in Washington, D.C., that Monday.
However, taxpayers and tax practitioners should brace for delays on refunds for tax returns that claim either the Earned Income Tax Credit or the Additional Child Tax Credit. The IRS expects to issue more than nine out of 10 refunds in less than 21 days. But the Protecting Americans from Tax Hikes Act, or PATH Act, requires the IRS hold refunds on tax returns claiming the EITC or the ACTC until mid-February to give the IRS more time to help detect and prevent tax fraud.
The IRS plans to begin releasing EITC and ACTC refunds starting February 15 but cautions taxpayers the refunds probably will not start showing up in bank accounts or on debit cards until the week of February 27. It will take extra time for the refunds to be processed and for financial institutions to accept and deposit the refunds to bank accounts, the IRS cautioned. Many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving President’s Day could also affect the timing of their tax refunds.
Koskinen encouraged taxpayers and tax professionals not to hold back on filing the tax returns, however. The IRS will continue to process the returns, even if it won’t be allowed to issue the refunds until February 15.
“Taxpayers claiming the EITC or ACTC should file as soon as they have all of the necessary documentation together to prepare an accurate return,” he said. “In other words, file as you normally do.”
Cautions for Taxpayers
Koskinen also had a special caution for taxpayers who use Individual Taxpayer Identification Numbers, or ITINs, instead of Social Security numbers on their tax returns. “Beginning this week, any ITIN not used at least once on a tax return in the past three years will no longer be valid for use on a return,” he said. “In addition, ITINs with middle digits 78 or 79 also expired as of January 1st. So if you have an expiring ITIN and need to file a return in 2017, it’s extremely important to renew your ITIN as soon as possible. Here’s why it’s critical not to delay: It can take seven weeks or more from the time you send in Form W-7, the renewal application, for the IRS to process the application and notify you about your status. Those who fail to renew before filing a tax return could face a delayed refund, and they may also be ineligible for some important tax credits. So I would urge people to file that renewal application right away, to avoid any delays. For more information, and to get answers to frequently asked questions, visit our ITIN page on IRS.gov.”
He also had an important reminder for taxpayers who file electronically with their own tax software. “If you’re changing tax software products this filing season, make sure you have a copy of your prior-year return on hand,” he said. “You may be asked to enter your 2015 adjusted gross income. This helps verify your identity before you e-file. We’re no longer offering the Electronic Filing Personal Identification Number, or e-File PIN, as an alternative. So, plan ahead and locate last year’s return.”
Form W-2 Verification Code
As part of the continued crackdown, the IRS said it will expand what’s called a “Form W-2 Verification Code” initiative that began last year.
About 50 million W-2 forms will include a 16-digit verification code that tax filers or preparers will need to add when prompted by tax software. About two million W-2s had such code during the 2016 filing season.
The IRS anticipates that the verification code ultimately will be used on all W-2 forms in future years.
Koskinen said the verification code can help the IRS validate that the W-2 itself is authentic and that the real taxpayer is filing the return.
He said consumers should not end up waiting longer for a refund because of the W-2 verification process. Instead, the new coding could help the IRS process legitimate returns more quickly, he said.
The IRS said more fraud is being stopped at the door before fake returns are even processed and refund money is issued to criminals.
One sign of success, according to the IRS, is that fewer taxpayers filed their returns this year and then suddenly discovered that their name and Social Security number had been used already to file a fake tax return.
The evidence: The IRS said the number of affidavits filed involving tax-related ID theft was cut in half during the first nine months of 2016, compared with the same period the year before. The IRS said 237,750 affidavits were filed during the first nine months, compared with 512,278 during the same time in 2015.
Through September, the IRS said it stopped 787,000 confirmed identity theft returns, which claimed refunds of more than $4 billion. During the same time last year, the IRS stopped 1.2 million confirmed ID theft returns, claiming about $7.2 billion.