One of the biggest changes for taxpayers claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) on federal tax returns for tax year 2016 is that any credit or refund will not be released until on or after February 15.
This is just one of many changes made under the Protecting Americans from Tax Hikes (PATH) Act of 2015, enacted December 18, 2015.
Individual taxpayers claiming the EITC or ACTC need to know:
- Section 201 of the PATH Act mandates that, “[n]o credit or refund for an overpayment for a taxable year shall be made to a taxpayer before the 15th day of the second month following the close of such taxable year” if a credit is allowed to the taxpayer for ACTC or EITC. This means if you are claiming the EITC or ACTC, you will not receive your refund until after February 15, for calendar year 2016 tax returns.
- This change begins January 1, 2017 but only affects returns filed before February 15 that claim the EITC or ACTC. So, if you file before February 15, you won’t get your refund until after that date. However, those refunds likely won’t actually arrive in your bank account or on your debit card until the week of February 27 — if there are no processing issues with the tax return and the taxpayer chooses direct deposit. If you file after February 15, your refund will be issued after your return completes processing, provided you owe no other liability.
- Based on this new law, the IRS will hold the entire refund, including the part of the refund that is not associated with the EITC or ACTC.
- Because it is a law, neither the IRS nor the Taxpayer Advocate Service (TAS) can release any portion of the refund, even when a financial hardship situation exists.
- If you are planning to claim either of these credits, you should still file as you normally do. See the TAS options for filing page for more information about filing choices. The IRS will begin accepting and processing tax returns once the filing season begins.
- Be careful when planning any financial obligations that are based on any specific refund date when claiming these credits. This includes being cautious of loan and preparer fee agreements where repayment is dependent upon the refund. Be especially aware of any stated repayment dates that are earlier than February 15. You do not want to incur more costs by committing to any repayment schedule that requires a full payment before the refund will actually become available.
- For next year, you should consider reviewing the amount of taxes being withheld early in the tax each year using the IRS Withholding Calculator, to ensure you are not having too much money withheld from your paycheck. If you do need to make a change, you should complete a Form W-4, Employee’s Withholding Allowance Certificate, and give the form to your employer. This will help reduce the amount of any potential refund that might be delayed, ensuring that the money is available in your paycheck instead.
The changes above will help the IRS protect you against tax identity theft and refund fraud. This is just one more step being taken to ensure you receive the right amount of credit or refund.
If you normally claim one or both of these credits, you should check IRS.gov for updated information on this change, and any related changes, before claiming these two credits.