As we get deeper into the 2019 tax season, some taxpayers are experiencing a delay in receiving their tax refunds. The old adage that if you are expecting a refund you should file early seems to be coming under fire a bit in recent years, but none so much as the 2019 tax season. But why?
The delay has little to do with the 2019 tax season itself. The IRS processes returns on a first come, first served basis and identity theft has been an increasing issue in the last few years. If the thief obtains your information, they want to file as soon as possible to get their fraudulent version of the return into the IRA before your actual return is sent. The upsurge in identity theft filing has increased so much that Congress passed a law (Protecting Americans from Tax Hikes Act) that forced the IRS to delay any tax returns that contained certain deductions. These deductions were determined to be most likely and easily targeted by identity thieves. The two biggest of these deductions are the Earned Income Tax Credit (ETIC) and the Child Tax Credit.
The Earned Income Tax Credit provides support to low- and moderate-income workers equal to a percentage of their earnings up to a maximum (that varies by family size) until it reaches a phase-out threshold. The Earned Income Tax Credit assists families with children far more than workers without offspring. The Child Tax Credit is a credit that provides up to $2,000 per qualifying child, with up to $1,400 of the credit being refundable. With the elimination of the dependent exemption in accordance with the Tax Cuts and Jobs Act of 2017, these two deductions may become more widely used. By law, the IRS must hold returns with these deductions until at least February 15th of each year. However, for the 2018 tax year filings, the IRS has stated that it will hold these until at least February 27, 2019. According to the IRS, returns that are filed after this date that contain these deductions will not be delayed.
Another reason for the delay in refunds comes from the government shutdown that occurred and carried on into the early part of 2019. This affects tax return filing because 2018 had numerous tax reform changes. The tax reform is only part of the equation causing a delay in returns. Another part comes from integrating those changes into the tax software and forms used by taxpayers to file their returns. While the IRS began accepting tax return filings on January 28, 2019, much of the software still had to be upgraded with updated forms. Additionally, while the government may be at full capacity again with staffing, it still must wade through the backlog of work that piled up during the shutdown.
Additionally, the IRS is operating with a decreased budget and staff. This will create delays in processing returns and refunds and also in helpdesk and support calls. The good news is that the IRS projects less audits for taxpayers going forward, but the delay in refunds will impact many taxpayers. Paper filed returns will take even longer to prepare and process and can have an expected delay of up to seven weeks, rather than the normal four to six week turn around.
States are also reporting delays in producing tax refunds this year, due to the government shutdown, as states often look to the federal tax codes for guidance and may even have laws that are affected by federal regulations. States need to receive Federal rulings before they can add new laws to their tax code, and this is delayed when the government is not in session. Most software will allow the taxpayer to complete the state filing but will notify the taxpayer of any delays in processing.
While it still may make sense to file early to avoid as much of the backlog as possible, even with the potential delays, most taxpayers with business returns will not file until after March 15th in order to take advantage of the new 199(a) deduction.
So how long will a taxpayer have to wait for their refund? The IRS is still estimating that it will take around twenty-one days for most taxpayers to be issued their refunds. If you feel that your refund is taking more time than even the expected delay, there are a few things you should do. First, verify that your return was received by the IRS and/or state. If it was filed electronically, the software will have an electronic acceptance verification. If you manually filed it, it is important to have a tracking format put on the return. Of course, if you filed a paper return, it will need to be manually entered on the IRS’s end and that will take time depending on the backlog of returns for the IRS to work though. The next step would be to go to the Where’s My Refund page on the IRS website to verify the date of your expected refund. If there is another reason for the delay, it would be a good idea to check in with the IRS or have your tax preparer do so. It is possible that there is an error in your return that is holding up the refund.
A participating tax return preparer creates a Tax Refund Anticipation Loan for you, which is an advance on your tax return refund. In most cases, you receive a portion of your tax refund upfront in exchange for signing over the return to a company and for a fee. Another method of receiving your refund faster is have it direct deposited into your bank account when submitting your return. This will eliminate the need to wait for the mail to deliver your refund check and for the bank to cash it.
The bottom line is - your refund will take more time than usual this year, regardless of how you file.