One of the biggest changes for taxpayers claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on federal tax returns for tax year 2016, is that any credit or refund will not be released until on or after February 15. This is just one of many changes made under the Protecting Americans from Tax Hikes (PATH) Act of 2015, enacted December 18. Individual taxpayers claiming EITC or ACTC need to know:
Section 201 of the PATH Act mandates that, “[n]o credit or refund for an overpayment for a taxable year shall be made to a taxpayer before the 15th day of the second month following the close of such taxable year” if a credit is allowed to the taxpayer for ACTC or EITC. This means if you are claiming the EITC or ACTC, you will not receive your refund until after February 15, for calendar year 2016 tax returns.
This change begins January 1, 2017, but only affects returns filed before February 15 claiming EITC or ACTC.
Based on this new law, the IRS will hold the entire refund, including the part of the refund that is not associated with the EITC or ACTC.
Because it is a law, neither the IRS nor the Taxpayer Advocate Service (TAS) can release any portion of the refund, even when a financial hardship situation exists.
If you are planning to claim either of these credits, you still should file as you normally do. See our options for filing page for more information about filing choices. The IRS will begin accepting and processing tax returns once the filing season begins.
Be careful when planning any financial obligations that are based on any specific refund date when claiming these credits. This includes being cautious of loan and preparer fee agreements where repayment is dependent upon the refund. Be especially aware of any stated repayment dates that are earlier than February 15. You don’t want to incur more costs by committing to any repayment schedule that requires a full payment before the refund will actually become available.
You are encouraged to review the amount of taxes being withheld, now and at least once during each year, using the IRS Withholding Calculator, to ensure you are not having too much money withheld from your paycheck. If you do need to make a change, you should complete a Form W-4, Employee’s Withholding Allowance Certificate, and provide the form to your employer. This will help reduce the amount of any potential refund that might be delayed, ensuring that the money is available in your paycheck instead.
The changes above will help the IRS protect you against tax identity theft and refund fraud. This is just one more step being taken to ensure you receive the right amount of credit or refund. If you normally claim one or both of these credits, you should check IRS.gov or our website for updated information on this change, and any related changes, before claiming these two credits as we get closer to the filing season.