Happy New Year!
Every year, about this time, me and the team field call after call that starts with something like “…I forgot to ask you…”
Fear not! We’ve been taking notes and we wanted to give you a few answers to the most common questions that we’ve heard this year, along with some observations about how the IRs is treating things a little differently these days.
Choosing E-file is smarter and faster…
Now, it’s essentially been a requirement for the last few years that most taxpayers would have to file electronically, but despite our initial misgivings 4-5 years ago, we think the E-file process is great. You get your refund faster, you can see (usually) at-a-glance if there were any issues with your returns, and the system is able to catch errors in seconds instead of weeks, like in the “good old days.”
There is one catch, though, and that is when taxpayers use software or file themselves: they may be tempted to make dangerous (and costly) assumptions regarding what is right and what the IRS actually allows. No matter how easy it is to E-file, please, please, please – sit down with us and let’s make sure you have all your data properly documented.
Use Direct Deposit.
Combining direct deposit with electronic filing is now simply the fastest way for you to get your refund. With direct deposit, a refund goes directly into the sanctioned bank account, with no reason to worry about a lost, stolen or undeliverable refund check. This is the same electronic transfer system now used to deposit nearly 98 percent of all Social Security and Veterans Affairs benefits. Nearly four out of five federal tax refunds are direct deposited.
Refunds Held for Those Claiming EITC or ACTC Until Mid-Feb
By law, the IRS will not issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or debit cards starting on Feb. 27, 2018, if direct deposit was used and there are no other issues with the tax return. This additional period is due to several factors, including the Presidents Day holiday and banking and financial systems needing time to process deposits. This law change, which took effect at the beginning of 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.
Why hold the EITC refund?
Sadly, the EITC likely delivers more than a quarter (28.5 percent) of all payments in error, according to a recent IRS compliance study. The largest source of error was determining whether a child claimed for the EITC actually qualified. The child must live with the parent (or other relative) claiming the EITC for more than half of the year in order to qualify. The IRS receives no administrative data that can verify where a child resided for the majority of the year, making it difficult for the agency to monitor compliance. Attempts to use administrative data from other programs to verify child residence have not proven successful. In an attempt to reduce fraud, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) requires the IRS to delay tax refunds for taxpayers who claim an earned income tax credit (EITC) or additional child tax credit (ACTC) on their returns until at least February 15.
Me and the team are here for you to field any questions that you might have, but until then, make it a great week!