IRS to Delay Tax Refunds Involving EITC and ACTC Next Year

The Internal Revenue Service is warning tax professionals that next year a new law will require the IRS to hold all Earned Income Tax Credit and Additional Child Tax Credit refunds until Feb. 15 as a safeguard against identity theft and tax fraud.

The IRS pointed out the new law is likely to affect some returns submitted early in the tax filing season. The IRS is encouraging tax professionals to begin preparing for the change now. Planning is also underway for a wider communication effort this summer and fall to alert taxpayers.

The action is driven by the Protecting Americans from Tax Hikes Act of 2015, or PATH Act, which was enacted Dec. 18, 2015. Section 201 of the new law mandates that no credit or refund for an overpayment for a taxable year shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return.

The change begins Jan. 1, 2017 and may affect some returns filed after 2017. To comply with the law, the IRS said it will hold the refunds on EITC and ACTC-related returns until Feb. 15. This allows additional time to help prevent revenue loss due to identity theft and refund fraud related to fabricated wages and withholdings.

The IRS plans to hold the entire refund until that time. Under the new law, the IRS cannot release the part of the refund that is not associated with the EITC and ACTC.

The IRS advised taxpayers to file as they normally do, and tax return preparers should also submit returns as they normally do. The IRS will begin accepting and process tax returns once the filing season begins, as we do every year. That will not change.

The IRS still expects to issue most refunds in less than 21 days, though the IRS will hold refunds for EITC and ACTC-related tax returns filed early in 2017 until Feb. 15 and then begin issuing them.

The IRS plans to work closely with stakeholders and IRS partners to help the public understand this process before they file their tax returns and ensure a smooth transition for this important law change. More information about this law will be posted to IRS.gov and shared with partners and taxpayers throughout the second half of 2016.