A new Federal tax law may affect some tax refunds filed in early 2017. Specifically, for those taxpayers who file early and who have the Earned Income Tax Credit and/or Additional Child Tax Credit.
The Internal Revenue Service has announced initial plans for processing tax returns involving the Earned Income Tax Credit and Additional Child Tax Credit during the opening weeks of the 2017 filing season. Due to fraud and identity theft, the IRS will be spending more review time and instituting more safeguards to protect taxpayers from theft and fraud fallout.
This action is also driven in part by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that was enacted Dec. 18, 2015, and made several changes to the tax law to benefit taxpayers and their families. Section 201 of this 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.”
This change begins Januray 1, 2017, and may affect some returns filed early in 2017. The basics are listed below:
- To comply with the law, the IRS will hold the refunds on EITC and ACTC-related returns until Feb. 15th to help prevent revenue lost due to identity theft and refund fraud related to fabricated wages and withholdings.
- The IRS will hold the entire refund. Under the new law, the IRS cannot release the part of the refund that is not associated with the EITC and ACTC.
- Taxpayers should file as they normally do, and tax return preparers should also submit returns as they normally do.
- The IRS will begin accepting and processing 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 IRS will hold refunds for EITC and ACTC-related tax returns filed early in 2017 until Feb. 15 and then begin issuing them.
Another option for taxpayers is to adjust their W4 now for the remainder of 2016; this will allow more take home pay and less of a refund. For assistance, please do not hesitate to call our office.