Many people are eligible for the EITC (Earned Income Tax Credit). If you plan to file early in the season and claim the EITC, your refund will be delayed.
What is the EITC?
The EITC is a refundable tax credit – not a deduction – designed to supplement wages for low-to-moderate income workers. The IRS estimates that about 20 percent of taxpayers who are eligible for the EITC fail to claim it, or are simply unaware that they qualify. The exact amount of the refund is dependent upon income, marital status, and family size. This often means that millions of people formerly classified as “middle class” or “white collar workers” may qualify because of a job loss, pay cut, or reduction in hours. The average amount of EITC received nationwide last year was more than $2,482.
What is the delay?
According to a new tax law, the IRS cannot issue refunds before February 15 for tax returns that claim the EITC or the Additional Child Tax Credit (ACTC). The law provides additional time for the IRS to review claims on these credits to detect and prevent identity theft and fraud. However, many taxpayers across the country rely on receiving their refund early on in tax season to help cover holiday and other expenses.
How do workers claim the EITC?
To claim the EITC, taxpayers must file a tax return, even if they don’t owe any taxes.
If this is the first year that a taxpayer is claiming the credit, but didn’t do so in the past, they can use the EITC Assistant to see if they qualify for tax years: 2015, 2014 and 2013. Individuals can file any time during the year to claim an EITC refund for up to three previous tax years.
Should taxpayers wait to file?
Although EITC/ACTC refunds will be delayed, early filers can still file returns as they normally would. Taxpayers are advised to avoid “refund anticipation” options. Early filers do often have a true need for their return money – unexpected car repairs, catching up on a past-due loan, getting ahead of holiday debt – but the challenge is making sure they don’t overspend on the cost of receiving that refund. Here are two things taxpayers can do to make the most of this year’s delay:
- Stay away from refund anticipation products. These products are provided by many commercial tax return preparers and can have the money to the taxpayer in a few hours to a couple of days, but the cost on this option is so expensive that the taxpayer actually loses money.
- Save that refund. It’s hard to come up with the funds elsewhere, but if taxpayers start by dedicating their refund, or at least part of it, to savings, they can get ahead of these New Year needs each and every time.
When can taxpayers expect their EITC refunds?
The IRS will begin to release EITC/ACTC refunds starting February 15. However, the IRS also advises filers not to count on actually seeing their refunds until the week of February 27. A reliable way for filers to track the status of their refund is to use the “Where’s My Refund?” tool available at the bottom of every Hampton Roads Accounting web page.on IRS.gov.
Although most refunds are issued in less than 21 days, many factors can affect how long it takes to issue a refund. It may take additional time for refunds to be processed after leaving the IRS, and for financial institutions to accept and deposit them to bank accounts and debit cards. Taxpayers are also reminded that many financial institutions do not process payments on weekends or holidays. Keep in mind the upcoming three-day holiday weekend for President’s Day.