IRS Issues Stern Warning For Taxpayers Claiming Two Popular Credits
Tax credits can be extremely valuable for those who qualify. Unlike tax deductions, which reduce your taxable income, tax credits reduce your tax bill dollar for dollar.
For example, if you qualify for a $2,000 tax credit and owe $5,000 in taxes, the credit lowers your bill to $3,000. A $2,000 deduction works differently. It reduces your taxable income instead of your tax bill directly. So if you earn $50,000, a $2,000 deduction lowers your taxable income to $48,000. If you’re in the 22% tax bracket, that deduction would save you $440 — far less than the $2,000 savings from a credit.
If you qualify for tax credits, it’s important to claim them. However, the IRS is warning taxpayers that refunds may be delayed if they claim two of the most popular credits available.
IRS Warning About Refund Delays
According to the IRS, taxpayers who claim either of the following credits should expect their refunds to arrive later than usual:
- The Earned Income Tax Credit (EITC)
- The Additional Child Tax Credit (ACTC)
Most taxpayers who e-file and choose direct deposit typically receive refunds within 21 days. However, those claiming the EITC or ACTC cannot receive their refunds before early March — even if they file early. Refunds may only arrive by that time if there are no issues with the return and the taxpayer selected direct deposit.
Why Refunds Are Delayed
The delay is due to the Protecting Americans from Tax Hikes (PATH) Act of 2015. This law prevents the IRS from issuing refunds that include the EITC or ACTC before mid-February, regardless of when the return is filed. The extra time allows the IRS to verify income information and confirm eligibility for these credits, helping reduce fraud and improper payments.
Importantly, the delay applies to the entire refund — not just the portion tied to the credit. If additional information is needed, the IRS may contact the taxpayer by mail.
Financial Impact Of The Delay
For many families, waiting longer for a refund can create financial strain, especially if they rely on that money to pay bills or cover essential expenses. The amounts involved can be significant. The Earned Income Tax Credit can provide up to several hundred dollars for workers without children and several thousand dollars for families with multiple children. The Child Tax Credit is also substantial, with a portion available as a refundable Additional Child Tax Credit.
Because the full refund is held until processing is complete, taxpayers claiming these credits may need to plan for a longer wait. If you’re expecting a refund that includes either of these credits, it’s important to factor in the potential delay when budgeting for the months ahead.
Source: TheStreet
