Tax refund delays are expected due to a new law.
For many taxpayers, a tax refund is often the biggest single amount of money they receive at one time each year, with average refunds around $3,000 in recent years. However, a new federal law will delay tax refunds for thousands of middle- and low-income taxpayers who file early in 2017.
The delay stems from the Protecting Americans from Tax Hikes Act of 2015. Section 201 of this Act states that “no credit or refund for an overpayment for a taxable year shall 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 law takes effect January 1, 2017. In other words, if you are claiming EIC or Additional Child Tax Credit, and you file early, your refund will be delayed.
As the law states, the new rule affects taxpayers who claim the Earned Income Tax Credit or the Additional Child Tax Credit. The IRS will be holding the entire refund for taxpayers who claim either of these two credits until at least February 15. This will predominantly affect early filers who claim these credits and typically get their refunds within the first three weeks of tax season. They may have to wait longer to get that money back from the IRS this time.
The main reason for the delay is that the IRS is attempting to reduce tax fraud and identity theft. The agency has decided to focus its efforts on giving a second look to returns claiming these two particular tax credits. Along with the refund delay, taxpayers should also be prepared to submit more documentation than usual to prove the validity of these tax breaks.