Attention holiday shoppers: You might not be able to count on receiving a federal tax refund in January to pay for those gift bills.
In a congressionally-approved change aimed at battling tax refund fraud and identity theft, the IRS must hold tax refunds until Feb. 15 for the millions of Americans who claim the Earned Income Tax Credit or the Additional Child Tax Credit.
"This is an important change as some of these taxpayers are used to getting an early refund," IRS Commissioner John Koskinen cautioned in an announcement as the year-end giving season approached. "We want people to be aware of the change for their planning purposes during the holidays. We don't want anyone caught by surprise if they get their refund a few weeks later than in previous years."
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The Earned Income Tax Credit benefits taxpayers with low to moderate incomes. For a single head of household with two dependent children, the maximum annual income to qualify for the program in 2016 is $44,648, IRS data shows. For married couples who file jointly and have two children, the threshold is $50,198.
Approximately 26 million tax filers had received the Earned Income Tax Credit as of June 2016, IRS statistics show. More than 20 million federal tax returns claimed the Additional Child Tax Credit in 2014, the data shows.
The IRS will start accepting and processing 2016 federal tax returns once the filing season starts next month. Early filers who don't claim the EITC or ACTC should receive refunds in less than 21 days after their returns are accepted for processing.
The new delay will give the IRS extra time to check 2016 filings for signs of fraud, including identity theft, before refunds are mailed.
The IRS estimated that 24% of all Earned Income Tax Credit payments in fiscal year 2013 (roughly $14.5 billion) were mistakenly paid. Although some errors were unintentional, resulting from the credit's qualification complexity, others involved filers who intentionally disregarded legal qualifications, the IRS says.
Similarly, the estimated improper payment rate for the Additional Child Tax Credit during fiscal year 2013 ran as high as 30.5%, or $7.1 billion, according to an audit by the IRS' inspector general.
A public-private effort between the IRS and tax-preparation industry partners and others helped cut tax refund identity theft reports in half and blocked millions of dollars in fraudulent refunds, the tax agency announced in November.
For the 2017 tax-filing season, the IRS and its partners plan new safeguards to ensure the authenticity of tax returns. The added features include 37 data elements that the tax-preparation industry will transmit to the IRS with each federal tax return filed by an individual. The tax industry partners for the first time will also give the IRS 32 data elements from business tax returns.
The additional screening "sometimes means the real taxpayers face a slight delay in their refunds," said Koskinen.