Dealing with taxes is tough enough, but when folks get the wrong information, things can go really bad really fast.
That happens every filing season. Someone's uncle who works down the hall from a tax attorney says this. A neighbor's accountant brother says that.
And, of course, there's the internet, probably the greatest single source of, to borrow a phrase, fake tax news.
The 2018 filing season is in full swing; it officially opened on Jan. 29, with Free File taking submissions since Jan. 12. Most of the folks who've already filed did so because they're expecting refunds.
With those early filers already wondering where their tax cash is, the Internal Revenue Service and I want to clear up some of the more common tax myths regarding refunds that have cropped up yet again.
Some come from a recent announcement from the IRS. Others are from questions I've received either here at the ol' blog, in person or through social media outlets.
All are myths, so don't fall for them.
Myth 1: All tax refunds are delayed.
Yes, some refunds are delayed, but not every single one.
The 2018 filing season is the second year that the IRS has been abiding by a provision in the Protecting Americans from Tax Hikes, or PATH, Act that requires it to hold refunds connected to two tax credits until mid-February. The credits in question are the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC).
These two tax credits also are refundable, which means that even if you don't owe taxes, they could get you a refund.
But that's where the truth stops and the refund myth starts.
Only returns that have either or both the EITC or ACTC will have their refund issuance slowed. In all other tax refund cases, the IRS says that the money will go out to more than 90 percent of filers in less than 21 days.
And while it's not a tax-law mandated hold, some other non EITC/ACTC returns also might take a bit longer to be processed because they are getting additional attention for a variety of reasons. The most common reason for regular refund delays is extra security reviews to prevent tax identity theft and refund fraud.
Myth 2: EITC and ACTC related refunds will be delivered on Feb. 15.
Just like with myth #1, this one takes a real tax situation and mangles it.
While I'm sure the IRS appreciates the believers of this myth's confidence in the agency's efficiency, such hopefulness is misguided.
The IRS expects to handle 155 million tax returns this filing season, with millions already filed by refund-anticipating taxpayers. The sheer logistics means that not every refund from a tax return claiming the EITC or ACTC can go out at the same time.
The IRS expects the earliest that EITC/ACTC-related refunds will be available in taxpayer bank accounts or on refund debit cards is Feb. 27. And that's just the first batch.
And if those filers chose direct deposit. And if there are no other issues with their tax returns.
So be patient.
Myth 3: Refund inquiry workarounds will help.
Have you heard that if you order a tax transcript it will tell you when to expect your refund?
Or if you call the IRS help hotline or your tax professional, who has a special line to the IRS, you'll get a firm refund delivery date?
Wrong, wrong and wrong. These touted refund inquiry workarounds won't work.
The information on a tax transcript does not necessarily reflect the amount or timing of a refund.
As for calling your tax pro, that's a good way to get dropped as a client. Yes, tax preparers do have special avenues to contact the IRS, but not to track down the delivery dates for all their clients.
And definitely don't try to get refund delivery information by calling the IRS directly. The help hotline is for folks trying to file their returns, not for those waiting for a refund. Plus, this time of year, you'll be on hold for a while.
Myth 4: A tax refund means my return is fine.
You filed. You got your refund. You and the IRS are both happy, right?
That's usually the case. But that cash back from the U.S. Treasury doesn't necessarily mean you're in the clear.
The IRS generally has up to three years to take a closer look at your filing. If the agency finds an issue during that time, you'll be hearing from an agent.
Myth 5: Since the IRS accepted my return, my state filing also is OK.
Again, this usually is true. Most of the states that do collect income taxes use filers' federal returns as the basis for the state and/or local filing.
But anyone who's filled out a state tax return (ah, fond memories of our tax seasons in Maryland) knows that there are some tweaks of your federal data on those more local tax forms.
And as states continue to scrap for every dollar they can get, state tax departments are looking more closely at their residents' filings.
This could get even trickier in the next few years under the federal tax law changes in the newly enacted Tax Cuts and Jobs Act. States are going to have to reassess their connection to the Internal Revenue Code and decide which of their state tax provisions they want to change so they conform with the federal law.
Myth 6: The IRS will call or email me about my refund.
Stop me if you've heard this before. Wait, don't stop me or the IRS. We both want to remind you that the IRS doesn't initiate contact with taxpayers by email, text messages or social media to request your personal, tax or financial information.
If you are contacted in one of these ways regarding your refund — either a caller saying you owe more or an email promising a bigger refund — the communication isn't from the IRS, even if the caller or emailer says they are agents. They are crooks looking to assume your tax identity and take your money.
Remember, the Internal Revenue Service will NEVER (emphasis by Uncle Sam):
- Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail a bill if taxes are owed.
- Threaten to immediately bring in local police or other law enforcement groups to have people arrested for not paying.
- Demand that taxes be paid without giving the taxpayer opportunity to question or appeal the amount owed.
- Ask for credit or debit card numbers over the phone.
And while an IRS agent does sometimes come to taxpayer homes or businesses, before your let him or her through the door, check out these ways to know that it's really an IRS agent knocking.
Finally, while tax crooks are more active during the main tax filing season, tax ID theft and refund fraud is a year-round crime. So don't let down your guard even after you’ve filed your return and cashed your refund check.
For now, though, as you anxiously await your refund, you at least now know the real deal about that tax cash, rather than the myths that have been circulating.
And with each new day that passes since you filed, you're closer to getting your refund.
You also might find these items of interest:
- Tax refund day is here! Sort of.
- S.C. woman uses federal tax refund to pay year's rent
- Got a refund? Paid a big tax bill? Time to adjust withholding!