Low-income Americans could face hurdles getting their tax refund fast and free
Low- and middle-income households could face tax refund delays and higher costs for tax preparation services after a late start this year, and new incentive provisions are making the filing season more difficult.
This year, rule changes may mean that more people will be eligible for the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC). However, this could also mean longer processing times for the applicants who claim them. As a rule, tax returns claiming these taxes cannot be published earlier than mid-February. However, this year it may take longer, according to a report from the National Consumer Law Center.
Read More: How To Use Your Tax Refund In 2021
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"The IRS says there will be no additional delay. We're not sure if this will actually happen in practice," NCLC associate director Lauren Saunders told Yahoo Money, "because they do a certain amount of fraud checking must and we. " I just don't know if they're stuck and things will be delayed. "
1040 income tax form and w-2 pay slip with a federal refund check. Close-up with selective focus.
The CTC grants credit of up to $ 2,000 per child under the age of 17. The amount will be reduced for single applicants with income greater than $ 200,000 and for joint applicants with income greater than $ 400,000.
The EITC is a loan for low and middle income families. The maximum credit for families with one child is $ 3,584 and for families with two children for the 2020 tax year it is $ 5,920. This season, taxpayers can use either their 2019 or 2020 income to determine eligibility for the loans, adding complexity for those who claim them.
"The IRS is overwhelmed"
Under the 2015 Law to Protect Americans from Tax Hikes (PATH), the IRS is required to postpone refunds from taxpayers who apply for any of these credits until February 15. The delay is intended to give the IRS time to prevent fraudulent refunds from being issued.
Read More: Here's One Way To Protect Yourself From Tax Identity Theft
But the late start of the filing season - beginning Feb. 12 - gives the IRS a much smaller window to conduct fraud checking this season, even though the agency said on its website that these refunds will be available "as early as the first week of" would march. "
"The entire tax season is being delayed and the IRS is overwhelmed: they're still processing last year's returns and dealing with stimulus payments," Saunders said. "There may be reasons why you cannot get these refunds as quickly as you would like."
The Internal Revenue Service (IRS) Headquarters in Washington DC
According to National Taxpayer Advocate Erin Collins' 2020 annual report to Congress, the IRS had to deal with distributing two rounds of stimulus checks, in addition to dealing with backlogs and slow processing of 16 million paper tax returns this past season. The IRS was backlog of over 7 million unprocessed individual tax returns as of December 31 and over 2.3 million unprocessed corporate returns as of November 24 last year.
"The challenges posed by the COVID-19 pandemic will last until the 2021 filing season, and possibly months, and affect both the IRS and taxpayers," Collins wrote in her report.
Read More: 4 Reasons Why You Should Change Your Tax Withholding
The delay in processing some of these returns was due to being frozen by the IRS fraud filters. Refunds took longer than 56 days to ship for 1 in 4 returns marked for income verification. Nearly 1 in 5 people reported for identity verification took more than four months to send refunds.
The potential distribution of a third round of stimulus reviews, included in President Joe Biden's $ 1.9 trillion stimulus proposal, could further complicate tax filing season and issuing refunds if the plan is passed.
Taxpayers applying for these credits may also face higher costs when filing their tax returns. They're more likely to use paid accountants since their returns are more complicated, according to the NCLC.
While there may be more transparency in pricing when it comes to using online services, there is a "lack of transparency" when it comes to personal services, the NCLC report said. These fees could be avoided if legitimate taxpayers use free tax preparation alternatives.
Read more: Do the following if you haven't received your stimulus check
Some taxpayers pay these fees out of their tax refund. For this purpose, the refund is first transferred to a temporary tax creation account. However, this could pose a problem if a third round of stimulus testing is sent and deposited on this temporary account. Whenever possible, taxpayers should use direct deposit to their bank account for their refund and prepay the tax preparation fee.
"You avoid hidden charges on this tax preparation fee loan and also eliminate the problems of the IRS not sending the money directly to your account," Saunders said.
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Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova.
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