The federal tax-filing season opened on January 23, and more than 150 million Americans are expected to submit a return by this year’s April 18 deadline. Although the tax code remains complicated, the annual review of income and expense reporting should be business as usual for most Americans.
Still, taxpayers, their representatives, and advisors should be aware of some important developments this year regarding tax refunds and to reduce the chance of becoming a victim of tax fraud.
Tax Credit Processing Delays
The biggest change this year affects about 30 million taxpayers who are eligible for the Earned Income Tax Credit and the Additional Child Tax Credit, respectively known as the EITC and ACTC.
In prior years, the Internal Revenue Service processed these refund checks as soon as tax filing opened. This year, a new legislative mandate requires that the IRS take more time to evaluate returns claiming those credits. As such, refunds for those returns will not be issued before February 15. In addition, employers must now report wage information to the government by January 31, instead of in March.
These two efforts combine to give the IRS the time it needs to verify the accuracy and authenticity of returns claiming either credit before processing refunds. Taxpayers should avoid any person or service that promises to process a refund before February 15. There are no exceptions.
Free File Program Continues
Taxpayers making $64,000 or less last year are eligible for the IRS Free File program, in which 12 companies provide name-brand tax preparation software at no cost to either consumers or the Government. This year, 22 states are also participating in this philanthropic program, providing a safe, easy and free way of filing of both Federal and State returns for their constituents.
More than 100 million taxpayers are eligible for Free File and the IRS’s Volunteer Income Tax Assistance program, programs created to help those taxpayers most in need of free tax services. Policymakers can help educate their constituents by pointing them to the information available on these programs at www.irs.gov/freefile and http://taxprephelp.org.
Fraud Prevention Intensifies
Over the past two years, the IRS, State tax officials, and the tax preparation industry have partnered and intensified their combined efforts to reduce tax refund fraud.
Building on last year’s success in pushing back on tax refund cybercrime, the IRS, states and tax industry leaders established new protocols and applied innovations to help better detect and prevent identity theft tax refund fraud. These collaborative efforts are helping to identify suspicious returns upon receipt of the filing and before refunds are deposited into accounts. Additional steps are also being taken to verify the ownership of bank accounts to ensure that the refunds are only deposited into the accounts of the actual taxpayers.
The new measures are intended to authenticate legitimate returns without unnecessarily delaying timely refunds.
Finally, the IRS, states and the tax preparation industry have stepped up their joint efforts to make taxpayers more aware of the need to take precautions when handling their identity data and personal tax and financial information, including avoiding email and phone scams. We also encourage taxpayers to file their returns as early as possible in order to protect their tax refunds from illicit attempts at theft by fraudsters.
Additional Changes This Year
There are several relatively small, but nonetheless important, tax filing changes that taxpayers should be aware of to file a timely, accurate return. These include:
- The extension of the tax-filing deadline this year until April 18.
- A modest increase in the personal exemptions and standard deductions.
- An increase in the alternative minimum tax threshold.
- An increase in the contribution limit for health savings accounts.
- A small inflation adjustment in the federal tax brackets of .04 percent.
Taxpayers who file electronically with tax preparation software or via tax professionals should see these changes reflected in the most recent versions of products. Those who still file paper returns will need to confirm all credit and deduction amounts with current IRS reference documents or at www.IRS.gov.
While every citizen is obligated to file a timely and accurate tax return, all taxpayers should also have the opportunity to maximize their refund by assuring their returns are complete and accurate, and protect their returns against fraud or theft.
As Congress and the Administration consider tax reform this year, we encourage policy makers to make tax simplification the foundation of any effort to reform the tax code. Simplifying eligibility requirements for deductions and credits, making the code easier to understand by using plain language, and eliminating multiple and contradictory definitions of common terms and eligibility requirements will help taxpayers much more easily understand their obligations, make filing easier and faster, and help to prevent refund fraud.
Lastly, policy makers should make core taxpayer assistance programs like Free File and VITA permanent so those taxpayers who are most in need of free services are assured that there will continue to be available long term, public service programs that help these taxpayers comply with their tax obligations at no cost to either the consumer or the public treasury. Some 6 million taxpayers already rely on Free File and VITA each year to make tax compliance simpler, easier and free. These programs make a meaningful difference for both taxpayers and the tax system.