Tax Refunds May Be Delayed in 2017 Due to Increased Identity Theft
Millions of taxpayers will have a longer wait for tax refunds next year due to the increasing tax refund fraud. Identity thieves are finding ways to file fraudulent tax returns using another person’s name and Social Security number in order to claim a tax refund before the actual taxpayer files their own tax return. To give perspective, the IRS estimates that it paid $3.1 billion to identity thieves in tax year 2014. During that same time, the IRS prevented an additional $22.5 billion in fraudulent refunds from being paid to identity thieves.
Congress and the IRS have worked together to develop a plan in the hopes of hindering the fraud. Their goal is to be a step ahead of the scammers. The only problem is that millions of taxpayers may have to wait longer to receive their refund next year.
The “Protecting Americans from Tax Hikes” Act was signed into law on December 18, 2015. One of the tax provisions included states that the IRS must wait until February 15 to issue refunds to taxpayers who claimed the earned-income tax credit (EITC) or the child tax credit (CTC). Since the EITC is a refundable credit, it has been an easy target for identity thieves. In 2013, an astonishing 24% of the EITC payments were paid erroneously.
In 2016, the IRS asserted it was delivering 90% of refunds in less than three weeks. In 2017, that number is expected to fall dramatically due to the Congress-instructed postponement. Tax firms are beginning to notify their clients who claim the EITC and CTC so that they may plan ahead for the delay.