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 for a vareity of reasons, including new laws, ID theft, and more.
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 2022, there is another reason your tax refund will be delayed: new legislation thanks for the Covid-19 pandemic. Specifically, a lot of early filers are going to struggle with issues around the Advance Child Tax Credit.
Even if you e-file early, the IRS won't start processing your tax return until January 24, 2022.
The sad part is, though, that many honest people may 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.
Advance Child Tax Credit Reconciliation
Last year, to help get more cash to families in need, the IRS started sending out Child Tax Credit payments monthly to qualifying families. As a result, at least 35 million families across the United States started receiving this cash.
But you need to remember - this extra payment was actually an advance on your 2022 child tax credit. As a result, you'll need to reconcile any payments - and you could either owe a refund to the IRS, or be entitled to more money.
In January 2022, the IRS will send you Letter 6419 to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. You need to keep this letter regarding your advance Child Tax Credit payments with your tax records and you may need to use this letter when you file your 2021 tax return during the 2022 tax filing season.
However, if you're an early filer, you may not want to wait for this letter (or it could be incorrect anyway). As a result, we believe that many early filers could see their tax returns stuck in limbo at the IRS due to this new Child Tax Credit.
The staffing of the IRS is likely going to cause a lot of delays for early tax filers. The reason is simple: with many IRS workers stuck at home or sick due to the pandemic, there will be delays. Combine that with the fact that the IRS is still behind from processing mail and tax returns from 2021, and we expect delays.
In 2022, the IRS is going to open e-File on January 24, 2022. However, in their announcement, the IRS even noted huge staffing shortages and the potential for delays.
However, if you're mailing documents to the IRS, expect delays. It took months and months to clear through the backlog last year, and the IRS is still delayed on taking care of mail returns and other correspondence.
Furthermore, if you have any issues with your return, such as requests for information or updates, you'll be stuck waiting as well. Staffing around the pandemic are really going to delay anything that requires an actual human to work on.
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, 2022. 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.