Tax-filing season is upon us, and, as always, the Internal Revenue Service is cautioning taxpayers not to rely on receiving their refunds by a certain date. Every tax return is unique, and, correspondingly, so is each taxpayer’s refund. Different variables may affect the timing and issuance of a taxpayer’s refund. Recent IRS efforts in the last decade to update procedures for strengthening security to help protect against identity theft and refund fraud may affect when taxpayers receive their refunds.
While the IRS issues most tax refunds in fewer than 21 days, there are those refunds that require more time to process. This additional time may be required when a return is incomplete, contains errors, or raises any red flags related to identity theft or fraud. The IRS contacts taxpayers via written notice by mail when it requires more information to process a tax return.
Taxpayers who engage in certain financial transactions, especially occurring late in a tax year, may have their taxes and any related refund delayed. Year-end transactions or events, such as capital gain distributions, stock dividends, holiday bonuses, and significant purchases and profitable sales of real estate, bonds, virtual currency, or other property, can create potential red flags, thus requiring due diligence on the part of the IRS to investigate a return.
The IRS is prohibited by law from issuing a tax refund before mid-February to any taxpayer claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). This federal law requires the IRS to hold the refund in full, including the funds that are unrelated to the credits. Taxpayers must also consider the time it takes to receive a check by mail, or for banks and other financial institutions to post a refund to their account.
Most taxpayers receive their refunds faster by filing their returns electronically and using direct deposit for their refunds. This simple, safe, and secure electronic transfer system is the same that is used to deposit almost 98% of all Social Security and Veterans Affairs benefits into recipients’ accounts.
There is a limit to the number of refunds that may be directly deposited into a bank account. No greater than three electronic refunds may be deposited into a single financial account or pre-paid debit card. If this limit is exceeded, the issuance of a refund may be delayed as taxpayers will receive an IRS notice and receive their refund by mail rather than direct deposit, which always gives taxpayers access to their refund faster than a paper check.