The 2017 tax filing season begins January 23. But millions of low-income families across the country will face delays in getting their refunds. The delays impact nearly 40 million families claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit.
A new law requires the IRS to hold tax refunds for people claiming these credits until February 15. And processing times will delay most of the refunds until the end of February, according to the IRS.
The Protecting Americans from Tax Hikes Act of 2015 - known as the PATH act - is part of efforts to fight fraud and identity theft by allowing the IRS more time to screen the returns. Each year, the IRS pays out billions of dollars in fraudulent refunds. According to The Associated Press:
The IRS estimates that it issued $3.1 billion in fraudulent tax refunds to identity thieves in 2014. The year before, the agency says, it paid out $5.8 billion in fraudulent refunds. Over those two years, the IRS says it blocked nearly $47 billion in fraudulent refunds.
The EITC is a federal subsidy for taxpayers who work but earn limited income. It began in 1975, but expanded in 1993 as part of President Clinton's anti-poverty policy. The Additional Child Tax Credit is also geared toward benefiting working-poor families. According to the AP:
Most families with children are eligible for the standard $1,000-a-child tax credit. The additional child tax credit is for low-income families who don't owe enough in federal income tax to claim the full credit. For example, if you only owe $500 in federal income tax, you can use the $1,000 child tax credit to reduce your tax liability to zero. But you don't get the other $500. The additional child tax credit enables eligible families to claim the rest of the credit in the form of a tax refund.
In 2014, more than 20 million families claimed $27 billion in these credits. Many families depend on these refunds to pay bills. But research shows that tax credits can also have emotional and psychological benefits for low-income Americans. According to The Atlantic:
Often, people can’t spend their refunds in the ways they’d like because they have bills to pay. But families can still indulge in dreaming about how to spend their money, which has a function in and of itself. For instance, families will dream of saving the money and putting it toward a down payment on a house, even though they end up using the money to pay off bills when the refund arrives.
The EITC has also been found to boost school achievement, improve the health of infants and mothers, and boost work effort and earnings.
This year, the IRS expects to process more than 153 million tax returns. More than 70% of taxpayers are expected to get refunds. In most cases, the IRS says it can issue refunds within three weeks from when a return is received, according to The Associated Press.