If you're expecting a tax refund, the most common advice is that you should file your tax return as soon as possible. There is no reason to let the government keep your money any longer. But for some filers this year, your early tax return will be delayed because of new laws designed to stop identity theft.
Over the last few years, identity theft related to taxes has exploded. In order to reduce possible losses from identity theft, Congress passed a law that forces the IRS to delay issuing refunds for people claiming certain deductions (the ones most likely used by identity thieves).
And in 2020, there is another reason your tax refund will be delayed: the Trump administration and staffing. In fact, even if you e-file early, the IRS won't start processing your tax return until January 27, 2020 (which is one of the latest start dates in the last decade).
The sad part is, though, that many honest people will see their tax returns delayed by several weeks. Now, that's not detrimental, but it is a longer wait than in past years. In fact, you can see our estimated tax refund calendar to know when you're going to expect your tax refund.
Note: Due to the Coronavirus pandemic, Trump announced that the filing deadline has been delayed to July 15, 2020. Be sure to check out our tax refund calendar for the latest.
The Government
The government staffing of the IRS is likely going to cause a lot of delays for early tax filers. The reason is simple: without contractors helping the IRS, they cannot get all of the programming done to the software to get the software live.
The last few years have seen a LOT of tax changes - Trump's Tax Reform had major impacts to the tax code, and that means a LOT of new software programming has to be created.
We've spoken to representatives from several major tax companies, and over the last few years, they were receiving almost daily updates from the IRS regarding software changes and updates.
In 2020, the IRS announced they will begin accepting returns on January 27, 2020, but if the software isn't ready, who is going to actually be able to file?
Check out our Tax Refund Calendar for the latest updates.
Delays For EITC and Child Tax Credit
If you're a crook, you try to file as many tax returns as quickly as possible. You see, the IRS processes everything on a first-come, first serve basis. So, if a criminal files a tax return in your name before you do, and they steal your refund - they win the race.
For the government, they will end up paying you the proper refund, but they also lost the money that went to the criminals. The bottom line is that they are delaying your tax refund because they don't want to lose more money. And it is serious money - the IRS estimates it paid out of $1.3 billion in fraudulent tax refunds last year.
If you're a victim of identity theft, you're going to have to submit a bunch of documents to the IRS to get the identity theft issue resolved. This can take anywhere from several weeks to several months. It's a long process, and it's not always easy.
In an effort to combat this, the IRS is now going to hold some refunds until February 15, 2020. The goal here is to see if two tax returns are filed for the same individual.
If you're concerned you are a victim of identity theft, read our common IRS questions and answers here for more information.
What Types Of Tax Returns Does This Impact?
It's important to note that not ALL tax returns are being delayed because of this new law. Only tax returns that have the following tax credits are being held:
- Earned Income Tax Credit (EITC)
- Additional Child Tax Credit (ACTC)
These are likely the most common tax credits taken by criminals, since they are what's known as Refundable Tax Credits. That means, even if you owe no taxes because of low or moderate income, you could still receive a refund for these tax credits.
If you're a criminal looking to get the most money possible, you'll likely want to file a return with these tax credits on it.
However, the impact is that low and moderate income tax filers have to wait longer for their tax refunds than in previous years.
How Long Do I Have To Wait For My Refund?
So, how long a delay will my tax return have? It all depends...
The IRS is still estimating that 90% of people should receive their refunds within 21 days. If you file early, the IRS will hold your refund until February 15, and then begin processing your refund. So, you could see a delay until the middle to end of February.
Based on what we've seen in prior years, we have a estimated tax refund calendar that we believe is pretty accurate. We encourage you to post your story so that others can see the timing as it happens.
If you want to get started on your taxes early, check out our picks for the best tax software for early tax filers.
Did you find your tax refund delayed by this new law?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.