IRS Warns of 2017 Tax Refund Delays
Many people like to use the tax system as sort of a forced savings account (albeit non-interest bearing) by having too much tax withheld during the year so that they have nice tax refund later. If that's you, you may want to reconsider.
The IRS is encouraging taxpayers to do a mid-year tax withholding checkup as a result of several new issues that could affect refunds in 2017. The withholding review takes on even more importance this year, as the IRS is warning that refunds for many taxpayers will be delayed in 2017 compared to the past.
The reason for the anticipated delays is that beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February.
Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund, including the portion NOT associated with the EITC and ACTC, until at least February 15.
This change helps ensure that taxpayers get the refund they are owed by giving the agency more time to help detect and prevent fraud.
Further, the IRS and state tax administrators continue to strengthen identity theft and refund fraud protections, which means some tax returns could again face additional review time next year to protect against identity theft related fraud.
"With these changes, it makes good sense on many different levels to check on your withholding and plan ahead for next tax season," says IRS Commissioner John Koskinen. "It's a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now."
As in the past, the IRS will still begin accepting and processing tax returns once the filing season begins. Taxpayers should file as they normally do. Even though the IRS cannot issue refunds for some early filers until at least February 15, the IRS says that most refunds will still be issued within the normal timeframe.
''This is an important change to be aware of for some taxpayers used to getting an early refund," Koskinen said. "We'll be focusing on awareness of this change throughout the fall, but it's important for taxpayers who might be affected by this to be aware of the change for their planning purposes. Although we still expect to issue most refunds within 21 days, we don't want people caught by surprise if they get their refund a few weeks later than previous years."
As a result, the IRS is encouraging taxpayers to check their tax withholding now. Whether you prefer more earned money during the year or a large refund, checking withholding can ensure you don't receive an unexpected tax bill next year. Making these checks in the late summer or early fall gives you enough time to adjust your withholdings before the tax year ends in December.
By adjusting your Form W-4, Employee's Withholding Allowance Certificate, you can ensure that the right amount is taken out of your pay throughout the year so that you don't pay too much tax and have to wait until you file your tax return to get your money back.
The IRS also issued an important reminder for those who receive advance payments of the Premium Tax Credit under the Affordable Care Act.
People who have advance payments of the premium tax credit made to their insurance company on their behalf (commonly known as a premium subsidy) should report life changes to their Marketplace. Changes in circumstances that should be reported include moving to a new address and changes to income or family size.
Reporting these changes will help individuals avoid large differences between the advance credit payments and the amount of the premium tax credit allowed on their tax return, which may affect their refund or balance due.
I can attest to the importance of this. Last year a client who had received a premium subsidy subsequently sold a small piece of property. Because he had owned it for many years, he recognized a fairly substantial (for him) taxable gain.
Not realizing this gain could affect his premium subsidy, he didn't report it to the Marketplace. Result – he owed over $7,000 back to the IRS when he filed his tax return, tax he had no idea he would owe!
The IRS offers several online resources to help taxpayers bring taxes paid closer to what is owed. They are available anytime on IRS.gov, and include:
- IRS Withholding Calculator — Online tool helps determine the correct amount of tax to withhold.
- IRS Publication 505 — Tax Withholding and Estimated Tax.
- Tax Withholding — Complete information on withholding, estimated taxes, FAQs, more.
