In a previous article, we joked the IRS likes to change the rules just to keep people on their toes. Well, they’re back at it again and as of December 18, 2015, the IRS changed the regulations a little when it comes to the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC).
Not sure if you know what these things are? We’ll fill you in!
The Earned Income Tax Credit is a refundable tax credit for low to moderate income working individuals and couples, particularly those with children. The amount of EITC benefit depends on a recipient’s income and number of children. Whereas the ACTC is a refundable credit that you may receive if your Child Tax Credit is greater than the total amount of income taxes you owe, as long as you had an earned income of at least $3,000. Nice tax breaks right?
The IRS thinks so too, however, there have been a lot of issues with identity theft and refund fraud due to these perks. Therefore, the IRS deems it necessary to make changes in order to stop these issues. According to The Path Act of 2015 (Protecting Americans from Tax Hikes Act), it has been mandated no credit or refund for an overpayment for a taxable year will be made to a taxpayer before February 15 if the taxpayer claimed EITC or ACTC. These changes begin will begin January 1, 2017 and may affect returns filed early. The IRS will be holding refunds until February 15 for EITC and ACTC and will not send out partial refunds.
Some further changes are that people will not be able to file an amended return to claim EITC for prior years for a qualifying child that did not have a social security number. This basically means that parents and children of immigrants must have social security numbers in order to claim the Earned Income Tax Credit; Individual Taxpayer Identification Numbers (ITIN) will not be sufficient in this regard.
***Note*** ITINs are issued by the IRS to individuals who require one and aren’t eligible to obtain a social security number. They are for federal tax reporting purposes only.
The IRS can also ban individuals from claiming EITC for ten years if they find fraudulently claimed credits. Incorrectly claimed refundable credit will now be taken into account when determining the underpayment penalty. In short, the IRS will have more severe punishments for people trying to cheat the system.
Good news, though, filing tax returns will still be the same as before for individuals filing on their own or if they have a tax preparer doing their tax returns. The processing of the returns by the IRS will also be the same and they still expect to issue refunds to people in less than 21 days.
The IRS put out their notice of the changes not only to inform the public, but to also give tax preparers a heads up on what to expect in the upcoming tax season.
If you have any questions, just give us a call!