Many people who need the tax refund money the most are looking at even more delays than usual this tax season.
A variety of factors could push tax refunds well into March or later for early filers, even though the Internal Revenue Service officially began processing tax returns on Jan. 24.
Tax professionals say federal income tax refund money typically won’t arrive until two weeks or three weeks after a tax return is processed. At best, many early filers who had returns in the pipeline Jan. 24 would receive their money in the next week or two.
The IRS noted that most tax filers who have no issues would receive their federal income tax refund within 21 days of when they file electronically, if they choose direct deposit. The IRS said that’s similar to previous years. Last year’s average tax refund was more than $2,800.
Many taxpayers, though, need to be warned that everything once again isn’t likely to move smoothly. There is no such thing as a simple tax season.
George Smith, a CPA with Andrews Hooper Pavlik in Bloomfield Hills, said he expects longer refund delays for some tax filers who face challenges relating to additional stimulus payments and advance child tax credit payments received in 2021.
“How long I cannot say, but based on 2020 tax returns processed I’m not optimistic for quick refund turnarounds,” Smith said.
Before you file — or buy now with plans to pay it off using refund cash — take time to consider what issues could hold up your income tax refund in 2022. Here are some factors:
Did you receive money from the advance child tax credit?
Do not underestimate how many problems will be caused this tax season as filers compare the total advance dollars received from July through December with the amount one still is eligible to claim on the 2021 return.
The first step is to look at the total dollar amount listed on the IRS Letter 6419 or letters that were mailed to you. A married couple filing a joint return is to receive two letters. But you’re also going to want to double check that information with your own records and information the IRS has online.
The letter itself spells out two key components that you need for a 2021 tax return — the total amount received in 2021 and the number of qualifying children taken into account when determining the advance payments in 2021.
What’s confusing: Some letters the IRS is sending are wrong, situations with divorced parents can get tricky, and the IRS has been issuing some confusing advice. All this means that you may not be able to file as early as you had hoped — or mistakes could trigger a manual review by the IRS that will delay your refund.
And if you know anything about the real world, well, you don’t need a tax expert to tell you that we’re looking at a ton of headaches ahead for some parents since you might imagine that a divorce doesn’t mean a couple suddenly will stop fighting about money.
Right now, the IRS said only a limited number of letters appear to contain the wrong total for the dollars received in 2021.
The issues apparently involve taxpayers who moved or changed bank accounts in December and now are seeing discrepancies with the information on their latest correspondence with the IRS on Letter 6419.
The IRS noted the letter might have been generated in those cases before money may have been received by the taxpayer.
You want to file an accurate and complete return, so you don’t want to file until you absolutely know your numbers relating to the child tax credit are correct. No guessing and hoping the IRS will fix it.
Amber Gray-Fenner, an enrolled agent at the Tax Therapy firm in Albuquerque, New Mexico, said the IRS often refers tax filers to the Child Tax Credit Portal for information. But if you go to the portal, the IRS states: “Do not use the Child Tax Credit Update Portal for tax filing information. To complete your 2021 tax return, use the information in your online account. You can also refer to Letter 6419.”
A new update from the IRS indicates that you can have an advance child tax credit payment traced by the IRS if you did not receive it.
The IRS posted on Feb. 1: “Review your payments in the ‘Child Tax Credit Update Portal’ to ensure the payment was not returned. If you did not receive the payment and the payment was not returned, you may request the IRS to trace the payment.”
“I would not hazard a guess as to how long that might take to resolve this year,” Luscombe said.
Antonio Brown, a CPA in Flint, warns of potential headaches for parents who are divorced and then alternate claiming their child or children from one year to the next, as part of divorce agreement.
“Whoever claimed the child on the 2020 tax return would have received the advance payment unless they opted out,” Brown said.
Say one divorced parent, who is not entitled to claim the child on the 2021 return received the advance monthly payments in 2021. (The IRS used information on 2020 or 2019 tax returns, what was available, to issue those advance payments that began in 2021.)
Luscombe said the parent who claimed the child in 2020 would be required to repay the advance money when filing a tax return for the credit received last year with the 2021 return in many cases unless they were protected by safe harbor rules.
If you received the advance payments — but you can’t claim the child on the 2021 return — you need to reconcile and pay back the IRS what’s owed.
The IRS says divorced parents in this situation could have gone online earlier in 2021 to opt out from receiving monthly payments using the child tax credit update portal at IRS.gov.
But Gray-Fenner notes it might take several weeks to get such information from the IRS — creating more frustration for taxpayers.
“If it is determined the payment was not received or was returned to the IRS,” according to the IRS posting, “IRS records will be updated, and you can exclude the payment from the aggregate amount of advance child tax credit payments you report on your tax return. This will allow you to claim, if eligible, the missing payment with your child tax credit on your 2021 return.”
Taxpayers in this situation would be urged to contact the IRS as soon as possible from 7 a.m. to 7 p.m. local time at 800-908-4184.
When you call, you’d need to give specific information about the missing payment: the payment date, method, status, and amount that is displayed in your “Child Tax Credit Update Portal.”
When it comes to trying to trace a missing payment, that effort could hold up things as the taxpayer may not be able to clarify the issue quickly with the phone number that the IRS is providing, according to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting in Riverwoods, Illinois.
If the divorced parent didn’t opt out — or had trouble opting out using the IRS system, as some did — there will be issues.
Now, what about the parent in this example who claims the child on the 2021 return? That ex-spouse will be able to claim the full amount of the child tax credit for the child, according to the IRS, even if the other parent received advance child tax credit payments last year.
While the other parent should have opted out from receiving advance payments, the IRS maintains that “their decision will not affect your ability to claim the child tax credit.”
For some filers, Brown said, it can be almost punitive if you didn’t opt out of the advance credit.
There are some safe harbors that limit how much some might have to pay back.
You only would qualify for full repayment protection, for example, if your modified adjusted gross income is at or below $40,000 in 2021 if you’re a single filer or you are married and filing a separate return.
For the head of household, the income needs to be at or below $50,000. And for married couples filing jointly, the income would need to be at or below $60,000.
And if you make more money, you might qualify for some protection but even that goes away if your modified adjusted gross income is at $120,000 if you are married and filing a joint return or $80,000 if you are a single filer or are married and filing a separate return. The threshold is $100,000 if you’re filing as head of household.
“Assuming that both spouses handle this in the correct way, there may be no holdup in processing or refunds,” Luscombe said.
“The IRS is unlikely to be aware of the divorce agreement, but as long as only one parent claims the child each year, the processing should not be held up,” he said.
But if both ex-spouses claim all or part of the child tax credit for the child in 2021, Luscombe said, the IRS probably will flag the returns and that could hold up processing and refunds.
Gray-Fenner said the advance child tax credit can prove to be quite confusing. Some letters that divorced couples are receiving could also be wrong, she said, adding to the confusion. And many may not realize that some people will have to pay back money received in 2021.
“If you got more than you are entitled to and don’t qualify for the income-based safe harbor you are going to have to pay it back,” Gray-Fenner said.
Did you collect jobless benefits in 2021?
About a million people who collected unemployment benefits from Michigan last year are stuck in their tracks early in the tax season, thanks to a new delay in 1099-G forms.
These tax filers — who perhaps need their federal income tax refund money the most right now — won’t be able to file an early return because they don’t have all their necessary paperwork now.
Many learned of this unwelcome twist by email in the past few days.
The state Unemployment Insurance Agency said Monday that 1099-G forms now will be sent toward the end of February — instead of the typical Jan. 31 deadline.
The agency anticipates sending 1099-Gs to about 1.2 million claimants, according to Nick Assendelft, communications manager for the Michigan Unemployment Insurance Agency.
The Internal Revenue Service granted an extension to the Michigan UIA to allow the state sufficient time to make updates to its systems.
Unfortunately, those who collected jobless benefits from Michigan will need to provide a 1099-G for 2021 to complete their tax return.
The 1099-G spells out how much a jobless worker received in unemployment benefits, as well as any income tax that might have been withheld in the past year.
Unemployment compensation is treated as taxable income on the 2021 federal return and the Michigan income tax return.
It’s terrible timing for some struggling families who want to file a return as early as they can. Some might face extra bills now that the temporary monthly payments for the child tax credit ended in December and no extra money arrived in January.
The best bet remains to wait for the 1099-G.
“Filing a return without this information could cause a delay in processing of their tax return, cause the client to repay tax refunds they were not entitled to, and/or possibly create fines and interest penalties that they will have to pay,” said Matt Hetherwick, director of individual tax programs for the nonprofit Accounting Aid Society in Detroit.
Hetherwick noted that many families are looking to file their tax returns as soon as possible to benefit from the expanded tax credits available this year, such as the child tax credit, the dependent care credit and the Earned Income Tax Credit.
Taxpayers who are waiting until late February for a 1099-G will have to wait another 30 days to 60 days longer than originally anticipated, he said.
“They may not see the document until the end of February and then they will have to get their returns prepared and filed with the IRS,” he said.
“Had the UIA been able to provide these on the original schedule then they could be filing their returns right now and getting their refunds in a few short weeks.”
Why does Michigan face this delay? The state wanted more time to seek a resolution for Michigan workers who received notices for overpayments and collection activity related to nonfraudulent claims filed during the pandemic.
Nearly 700,000 claimants were asked by the state’s UIA to “requalify” for unemployment benefits over the summer because the state is using a waiver process authorized by the U.S. Department of Labor. Many of those claimants, though, have yet to receive waivers.
Will you claim the Earned Income Tax Credit?
Early birds who e-filed a federal income tax return on Jan. 24 or shortly after aren’t going to see their refund money until mid-February or later if their return included a claim for the Earned Income Tax Credit or Additional Child Tax Credit.
The IRS, by law, cannot issue those refunds with these credits before Feb. 15. Congress gave the IRS additional time to help the IRS stop the growth of fraudulent returns that tried to wrongly cash in on big refunds generated by these credits. The law was enacted in 2015.
People who claim the Earned Income Tax Credit can expect to see tax refunds in bank accounts or their debit cards by the first week of March, according to IRS alerts.
Two key Democrats in Congress want to eliminate that Feb. 15 rule and speed up many of these refunds.
House Ways and Means Committee Chairman Richard Neal, D-Mass., and Ways and Means Oversight Subcommittee Chairman Bill Pascrell, D-N.J., introduced a bill to “undo tax refund delays for recipients of the Earned Income Tax Credit who file their taxes early.”
The bill would allow the IRS to issue many refunds to roll out earlier if the amount on the tax return can be matched and verified with information on W-2 forms, which are issued by Jan. 31.
