This is just a quick post to let you know that the IRS must wait until February 15, 2017, to issue refunds on returns who have the Earned Income Tax Credit or the Additional Child Tax Credit (ACTC). This is not attributed to the IRS’ discretion. The decision to hold refunds is not controlled by the Internal Revenue Service (IRS), and not all taxpayers will be affected. More than a year ago, the US Congress passed the “Protecting Americans from Tax Hikes (PATH) Act of 2015.” The section of the law that focuses on refunds, section 201, goes into effect this year.
If you are one of the affected taxpayers, all of your refund will be delayed. The IRS cannot release the part of the refund that is not associated with the EITC and ACTC.
The reason for the delays and why on these two credits is because these credits are both refundable tax credits. When you have a refundable tax credit, it can reduce your tax liability below zero. Also, if the amount of the refundable credit is larger than the amount of tax you owe, you are due a tax refund. A refundable tax credit allows you to receive a tax refund even if you didn’t have any tax obligation and even if you didn’t pay into the system.
A nonrefundable tax credit, on the other hand, means you get a refund only up to the amount you owe for taxes. A nonrefundable tax credit does not provide a refund for excess of the nonrefundable credit.
Be aware when you have your taxes prepared that your refund could be delayed. Please, at all costs, don’t get swayed by refund loans. Sure, you get your refund fast, but it will cost you big time. You lose a large portion of your refund. Remember that the IRS provides free tax preparation services through VITA. There are also free online preparation and filing.