Your Tax Refund and Changes to the EIC
Editor’s Note: Read on to learn more about Earned Income Tax Credit changes and how it many affect your upcoming tax return.
If tax credits were people, the Earned Income Credit (EIC) would be the party starter. This credit is easily the crowd favorite because, for qualifying people, it can be worth over $6,000. It is also refundable, so even if you do not have enough tax liability to eat up the credit, the EIC will increase your refund, which you’ll get as a check from the IRS. Clearly this credit is worth the time and effort to see if you qualify. And, only four out of five of the people eligible for the EIC actually claim it, so it can be a hidden gem.
Earned Income Tax Credit Changes
There’s some changes for the EIC that we want you to know about. These rules could affect you when you file your taxes. Before you read up, make sure you know the requirements to qualify for the Earned Income Credit.
The Earned Income Tax Credit changes are as follows:
1. If you claim the EIC, your refund may be delayed.
Even if you qualify for the EIC, get your W-2s early, and pair direct deposit with e-file, the IRS may hold your refund longer than a non-EIC claiming taxpayer. The purpose for the delay is to give the IRS more time to prevent fraudulent returns from being filed and processed. This reduces EIC fraud and the tax gap. If you file after February 15, your refund should be processed within the normal 21-day timeframe.
[Pro tip: Use H&R Block’s “Where’s My Refund?” to check to status of your refund.]
2. There’s no retroactivity when you obtain a Social Security number (SSN) that is valid for employment.
To qualify for the Earned Income Tax Credit, you must have a valid SSN. Previously, taxpayers who obtained a valid SSN could amend prior year tax returns (if the year was within the timeline for claim for refund and all other qualifications were met). Due to tax law changes, to qualify for the EIC, you now need a valid SSN by the due date of the tax return in which you claim the EIC including extensions. Also, any qualifying child listed on Schedule EIC must have a valid SSN issued by the due date of the return (including extensions). So, if your SSN is issued after the due date of a particular year’s tax return, you will not be able to retroactively amend and claim this credit. So, if you are waiting on the Social Security Administration to issue your SSN, you should file an extension to meet the timeline.
3. There are tax penalties for those who incorrectly claim the EIC.
The rules have made improperly claiming the EIC when you do not actually meet all of the rules even less attractive. The IRS has an expanded list of reasons it can deny EIC because of mathematical or clerical errors. Additionally, the accuracy-related penalty or underpayment penalty could apply if you file a return erroneously claiming EIC in excess of your tax liability and the erroneous EIC is consequently removed from your return in an audit.
If that is not motivation enough to make sure you meet every EIC requirement, don’t forget that the IRS can bar someone from claiming EIC for two years if it finds that an error was due to reckless or intentional disregard of EIC rules, or for 10 years if it finds that person has fraudulently claimed the credit.
More Help With Navigating the Earned Income Tax Credit Changes
The tax code changes frequently, including Earned Income Credit changes. To help you navigate your tax obligation, get help. Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you get back the most money possible.
If you need help handling an estate, we're here to help. Learn how to file taxes for a deceased loved one with H&R Block.
Choosing the wrong filing status is a common mistake. Do you know what your tax filing status is? Read on to learn about filing statuses with H&R Block.
From retirement account contributions to self-employment expenses, learn more about the five most common tax deductions with the experts at H&R Block.
Getting married? Having a baby? Buying a house? Go through your life events checklist and see how each can affect your tax return with the experts at H&R Block.