Last year, over 150 million tax returns were processed. For most people, this will be most significant payment of the year – and they rely on that check.
The IRS knows your refund is important to you. It prides itself on paying most refunds within 21 days of filing. But what if your tax refund is delayed?
“Where’s my refund” is a common question we get here at H&R Block. And this post will tell you why you may see a delayed tax refund this year.
Quickly paying out refunds causes concern for the IRS and the U.S. Congress. When the IRS quickly issues refunds, there isn’t always enough time to check returns for accuracy. And rushing this process creates the opportunity for return errors and improper refunds.
EITC/ACTC Tax Refunds Delayed Until Late February
That’s why, starting in the 2017 tax season, Congress gave the IRS more tools to question refunds. Specifically, Congress:
- Moved up the deadline for employers to send Forms W-2, which show taxpayers’ wages and the income tax withholding they paid, and Forms 1099 reporting payments made to independent contractors. The deadline is Jan. 31.
- Delayed refunds containing the earned income tax credit (EITC) and/or the additional child tax credit (ACTC). The IRS can’t release these refunds before Feb. 15, but the IRS is saying not to expect your refund until the week of Feb. 27.
Both new rules mean that, for the first time, the IRS will have the information and the time it needs to question more returns before issuing refunds. However, questioning and delaying refunds isn’t a new concept for the IRS. In fact, several IRS compliance programs take or hold refunds for millions of taxpayers each year. Here are some of the reasons why your tax refund may be delayed:
Reason #1 – IRS Taking Your Refund
When the IRS issues refunds, it mainly takes or reduces (offsets) refunds when taxpayers have debts to pay. Here are the two most common situations:
You owe federal taxes, and you haven’t paid:
If the IRS took your refund to pay federal taxes you owe, you’ll know it a few weeks after you file your return. You’ll get IRS notice CP49,Overpayment Applied to Taxes Owed. If you don’t think you owed what the IRS says you owed, the only thing you can do is file an amended return to correct the tax or contest any extra tax the IRS charged you (like a tax bill from an audit or an underreporting notice).
You owe other debts, and you haven’t paid:
The Treasury Offset Program (TOP) allows the IRS to take or reduce your refund if you owe other types of debts, including non-tax debts, such as:
- Past-due child support
- Other federal agency payments
- State taxes
- Unemployment compensation repayments
The IRS can’t answer questions or resolve disputes related to TOP debts. Taxpayers should call TOP at (800) 304-3107 for answers.
Spouses who aren’t responsible can get their part of the refund
If you filed jointly with your spouse, and the IRS took your full refund for your spouse’s debts, you can get your portion of the refund. File an injured spouse claim using Form 8379, Injured Spouse Allocation.
Reason #2 – IRS Holding Your Refund
The IRS can hold your refund and request more information from you in several situations. This doesn’t mean you’re being audited – but it can lead to one if you don’t respond with all the information by the deadline.
Here are six of the most common situations when the IRS can hold your return:
You mailed in your return, and the IRS flagged a “math error”:
When taxpayers e-file their returns, the e-file process catches many return errors and rejects the returns at the time of filing. If you mail your return instead of e-filing it, the IRS is more likely to identify an error after the fact.
The IRS calls most of these errors “math errors,” but they aren’t limited to arithmetic mistakes. If your Social Security Number (SSN) or your dependents’ information doesn’t match IRS records, the IRS can change any related deductions or credits (like the deduction for your dependent, the EITC or the child and dependent care credit). The IRS can also change your return if you forget to include a corresponding schedule or form to support a deduction or credit.
If the IRS changes your return, you’ll get a letter (usually IRS notice CP21) asking you to correct the error within 60 days. If you don’t provide enough explanation and information, the IRS change is final. At that point, you would have to amend your return and follow up with the IRS to get your refund.
The IRS suspects identity theft:
IRS identity theft filters sometimes delay returns and tax refunds until taxpayers verify their identities. If this happens, you’ll usually receive IRS Letter 5071C asking you to verify your identity. Until the IRS reinstates its online identity verification process, you can verify your identity by providing the IRS Taxpayer Protection Program unit with information from last year’s return, your current-year return, and your current-year Forms W-2 and 1099.
The IRS is challenging tax credit(s) you claimed:
If the IRS doesn’t think you’re eligible to claim the EITC, ACTC, advanced payments of the premium tax credit, or American Opportunity Tax Credit, based on its return screening filters, the IRS can delay your refund and ask for more information.
Technically, this is an IRS audit. If the IRS challenges your EITC claim, you’ll usually get Letter CP75, which will ask for proof that you qualify for the EITC. For an example, see Form 886-H-EIC, Documents You Need to Send to Claim the Earned Income Credit on the Basis of a Qualifying Child or Children for Tax Year 2015.
The IRS identified potential ACA health insurance issues:
It’s only been a few years since the start of the Affordable Care Act requirement for taxpayers to get health insurance coverage, and the launch of the health insurance marketplaces where taxpayers can buy insurance and get tax credits to help them afford premiums.
In 2017, the IRS started receiving millions of information statements related to taxpayers’ health insurance coverage (Forms 1095-A, -B, and -C), as well as information about tax credits they may have received.
The IRS can use this information to question the accuracy of tax returns and delay potential tax refunds. If your return has discrepancies or a missing reconciliation of the advance payments of the premium tax credit, the IRS can request more information from you to process your return (Letter 12C), or even begin an audit to charge you penalties for not having required insurance coverage. After you file your return, the IRS may challenge your reporting of insurance coverage if it conflicts with Forms 1095 the IRS has on file.
You need to file an old return:
When the IRS pursues back tax returns, the IRS can freeze any refunds you may be due until you file the old return. The only way to fix this issue and get your refund is to file the past-due return. If you owe taxes on the old return, the IRS will take that amount out of your current-year refund.
You’re under audit from an earlier year:
The IRS can delay your tax refund until it completes any audits. This is most common when the IRS is conducting a mail audit on your EITC or ACTC return from a prior year. Normally, you’ll receive IRS Letter CP88 indicating that your refund is frozen until the IRS completes the audit. If you respond with the requested information by the deadline, the IRS will generally finish the audit within six months and can release your refund.
Handling a Refund Delay – Do Your Research and Respond Right Away
If the IRS is delaying your refund, you’ll need to understand why, and navigate the IRS to issue your refund as quickly as possible. This can be a daunting task because refund holds can feel like audits. But, be patient, and don’t worry. If your tax return is correct, it’s just a matter of explaining everything (and maybe providing some documentation) to the IRS.
Best course: If you get a notice from the IRS about your refund hold, immediately investigate the cause. Here’s where to start.
Contact the IRS and research your IRS account.
After you understand more about why the IRS delayed your tax refund, and how to respond to the IRS, do so right away to avoid further problems.
Your H&R Block tax professional can also help you investigate the cause of a refund delay and communicate with the IRS for you. Learn more about H&R Block’s Tax Audit & Tax Notice Services.