New law requires the IRS to delay some refunds

New law requires the IRS to delay some refunds
Eileen St. Pierre, The Everyday Financial Planner

Starting on Monday, January 23 the IRS will begin accepting 2016 tax returns. A provision of the Protecting Americans from Tax Hikes Act of 2015, otherwise known as the PATH Act, will now require the IRS to delay refunds of those claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15. If you factor in weekends, the President’s Day holiday, and bank processing, these affected Americans may not get their refunds until the end of February.

First, you need to get over the shock that Congress actually passed a law in 2015.

Why were the EITC and ACTC programs targeted by this legislation?

These are refundable credits. This means you get the full amount of the credit back regardless of how much you owe in taxes. So if you don’t owe any tax, and you qualify for these programs, you still get the full amount of the tax credit. This makes them ripe targets for identity thieves.

  • The PATH Act wants to prevent revenue loss due to identity theft and fraud due to fabricated wages and withholdings.
  • These returns will be scrutinized more to verify information and thus the reason for the delay in the refund being issued.
  • Identity thieves tend to strike early in the tax filing season. They want to file your return before you do.

family eating togetherThe EITC is a particularly lucrative tax credit.

The EITC is a benefit in the form of a refundable tax credit for low to moderate income Americans that promotes work. The benefit starts at $506 for single filers with no children with incomes < $14,880 ($20,430 for couples). It rises with the number of children (dependents) you have. The maximum credit is $6,269 for single filers with 3 or more children who make < 47,955 and couples who make < $53,505.

For many families, the EITC makes up the majority of their tax refund. But the temptation exists to fabricate information in order to claim the maximum credit.

File early to avoid tax identity theft.

There are steps you can take if you are a victim of tax identity theft. Read my column Tax Identity Theft for step-by-step instructions. The IRS will always notify you by mail if your return has already been filed. They will not call or email you.

If your refund is delayed, please be patient. Remember the days when we actually had to wait for the IRS to mail our refund? We got through it.

Visit my Basic Financial Management page for information on how to best use your tax refund.