New Federal Tax Law May Affect Some Refunds Filed in Early 2017

The Internal Revenue Service has announced initial plans for processing tax returns involving the Earned Income Tax Credit and Additional Child Tax Credit during the opening weeks of the 2017 filing season. The IRS is sharing the information now to help the tax community prepare for the 2017 season, and plans are being made for a wider communication effort this summer and fall to alert taxpayers about the changes that will affect some early filers.

This action is driven by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) that was enacted Dec. 18, 2015, and made several changes to the tax law to benefit taxpayers and their families. Section 201 of this new law mandates that no credit or refund for an overpayment for a taxable year shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return.

This change begins Jan. 1, 2017, and may affect some returns filed early in 2017. Additional information is listed below.

• To comply with the law, the IRS will hold the refunds on EITC and ACTC-related returns until Feb. 15.
• This allows additional time to help prevent revenue lost due to identity theft and refund fraud related to fabricated wages and withholdings.
• The IRS will hold the entire refund. Under the new law, the IRS cannot release the part of the refund that is not associated with the EITC and ACTC.
• Taxpayers should file as they normally do, and tax return preparers should also submit returns as they normally do.
• The IRS will begin accepting and processing tax returns once the filing season begins, as we do every year. That will not change.
• The IRS still expects to issue most refunds in less than 21 days, though IRS will hold refunds for EITC and ACTC-related tax returns filed early in 2017 until Feb. 15 and then begin issuing them.

This is one more step the IRS is taking to ensure taxpayers receive the refund they are owed. The IRS plans to work closely with stakeholders and IRS partners to help the public understand this process before they file their tax returns and ensure a smooth transition for this important law change.

More information about this law will be posted to IRS.gov and shared with partners and taxpayers throughout the second half of 2016.