Tax season can be stressful but the saving grace is that many tax filers will receive a refund. In past years, about 75% of filers receives refunds after filing their federal income tax returns. Many people even count on a refund to help them pay down debt or cover bills early in the year. That means a delayed refund can cause problems for some. Let’s look at common reasons for a tax refund delay and how you may be able to prevent it.
How Long It Takes the IRS to Process a Tax Refund
For 2019 tax returns (what you file by April 2020), the IRS has said it plans to issue more than 90% of refunds within 21 days. Some refunds could take as little as 14 days. That means you should prepare to wait three weeks, from when the IRS accepts your return, to receive your refund.
This three-week prediction only applies to e-filed tax returns. If you file a paper return, the IRS says you can expect refund processing to take six to eight weeks. If you elect to receive your refund as a paper check, you will then need to wait for your check to go through the mail. Get an idea for when your refund will arrive with this 2020 tax refund schedule. The IRS also maintains a Where’s My Refund? tool.
One tangential thing to remember is that the IRS does not accept tax returns before a certain date. The earliest you could file a 2018 tax return was Jan. 28, 2019. So the earliest date you could possibly expect to get a refund is about midway through February. This is a good thing to keep in mind if you are hoping to use your refund to pay something early in the year.
Reason for Delay: You Claim Certain Credits
If you file early and claim the earned income tax credit (EITC) or the additional child tax credit (ACTC), you will have to wait a bit for a refund. According to the law, the IRS has to wait until Feb. 15 to issue a refund to taxpayers who claimed either of those credits. President’s Day and bank processing times can slow down your refund further. For 2019, the first refunds (if you claimed the EITC or ACTC) aren’t available in taxpayer bank accounts until Feb. 27.
This hold on your refund may get in the way of your budgeting, but there is no need to be nervous. The hold is not a result of mistakes or problems with your return. The IRS simply takes the extra time to confirm that everyone who claimed the credit could rightfully do so.
If you claimed those credits and you have been waiting weeks for a refund, you can check the status of your refund on the IRS website through its Where’s My Refund? tool.
Reason for Delay: Filing Early or Late
It feels good to get your taxes done with as soon as possible, but early filers may have to wait a bit for refunds.
One reason for this is because the IRS may still be making changes to their processes. That could include updated security measures or process tweaks due to changes in the tax code. And if the IRS needs to update or make changes, it probably won’t make them until just before tax time. This could be especially true in 2020 because of President Trump’s new tax law.
Your refund could also face a delay if you file early in the tax season because this is a high traffic time for the IRS. The same is true at the end of tax season. The majority of taxpayers file either as soon as they can or wait until close to the tax day deadline (April 15, 2020). Going through a high volume of returns will take time.
Reason for Delay: New Security Measures
Identity theft is a big threat in today’s world. To combat the threat, the IRS maintains strict security standards. Some security measures will cause the IRS to increase processing time for returns (and refunds).
If the IRS suspects that someone has attempted to steal your identity (by filing a fake return), this could hold up your return. You would then have to wait until the IRS completes any investigating and until it can ensure that you are who you say you are.
The IRS may also convert your refund from a direct deposit to a paper check. This will delay your refund but it is simply a security measure. It protects the IRS from sending money to a bank account it does not believe is yours.
Many state governments have also said that they will take longer to process tax returns because of new security measures. A state government may also work on a different timeline than the IRS. For example, Alabama historically has not started issuing refunds until March 1. The IRS starts issuing refunds in February.
If you are trying to track your state refund, read this article on where your state refund is.
Reason for Delay: You Filed a Paper Return
As mentioned earlier, the IRS takes significantly longer (six to eight weeks) to process paper returns. That means you will wait longer for a refund than if you e-file. If you file a paper return via certified mail, it will take the IRS even longer to process the return.
Speaking of paper returns, you will need to file all amended returns (1040X) as a paper return. The IRS estimates the processing time for amended returns as somewhere between eight and 12 weeks.
Even if you file electronically, you will have to wait longer if you elect to receive your refund as a paper check. Sending a check through the mail also creates the possibility of the check getting lost or sent to the wrong address. That would delay your refund similarly to the way sending a refund to the wrong bank account would.
Reason for Delay: Mistakes on Your Tax Return
If you file an incomplete return or if you have any mistakes on your tax return, the IRS will spend longer processing your return. This will slow down any potential refund. Mistakes could include mathematical errors or incorrect personal information.
Using a tax filing service, such as TurboTax, will likely eliminate mathematical errors from your return. The software will do the math for you. However, it’s still possible to make a mistake if you are inputting any information manually For example, let’s say you manually input the information from your W-2. If you earned $50,000 over the year but you accidentally input $51,000, you may run into problems.
The IRS will contact you if there are any issues with your return. In some cases, the IRS will correct small mathematical errors. That could save you the work of having to file an amended return.
Incorrect personal information will also slow down your return. As an example, let’s say you file a joint return and incorrectly input your spouse’s Social Security number (SSN). The rest of the information on your return could be correct, but the IRS may not be able to confirm that because it can’t match your spouse’s SSN.
Reason for Delay: Incorrect Refund Information
Most taxpayers now receive refunds via direct deposit into a bank account. When you provide your account number and bank routing number, it’s important to double check that the information is accurate. No one wants to miss out on a refund because it went to the wrong bank account.
If you entered the wrong account information, there are a few things you can do. In the case that the IRS hasn’t sent your refund yet, you can ask them to stop the direct deposit. Call the IRS toll-free at (800) 829-1040, any weekday between 7 a.m. and 7 p.m.
In the case that the IRS already sent the payment, you will need to contact the financial institution. If the institution can get the funds, it will return the refund to the IRS. The IRS will then issue your refund as a paper check. If the institution says it cannot get the funds back, you should file Form 3911, Taxpayer Statement Regarding Refund, with the IRS.
Form 3911 will allow the IRS to contact the financial institution on your behalf and attempt recovery of your refund. When you file the form, the IRS will initiate what’s called a trace. Banks have 90 days from the date of the initial trace to respond to the IRS’ request for information. However, a bank is not required to provide information to the IRS. If the bank doesn’t respond, your final option is to take civil action against the financial institution and/or the owner of the account into which your refund was deposited.
Reason for Delay: You Have Outstanding Debt
For certain types of debts, the IRS has the authority to garnish your tax refund. (Wage garnishment is the act of withholding money from you in order to put it toward something else.)
Common reasons that the IRS will garnish your refund include
- You owe money for back taxes
- You defaulted on a federal student loan
- You owe money for child support
- You filed a joint return and your spouse has outstanding debt
In the event that the IRS garnishes your refund, you will receive a notice explaining why it did so. If you don’t think you owed that debt, you will need to dispute it with the agency to whom the money was paid.
There are a number of reasons why you could experience a tax refund delay. Some reasons won’t require any additional work on your part. This could be the case if you claimed certain credits or if you file at certain times. Filing a paper return or receiving your refund as a paper check will also slow things down. Other reasons for delay will require you to do additional work. Maybe you input your wages or SSN incorrectly. That could prevent the IRS from successfully confirming your identity and cause a hold on your refund. You should also double and triple check that all your direct deposit information is correct. It could be very hard to get your refund back if it is sent to the wrong bank account.
Tips for Making the Most of Your Refund
- In some states, the average federal income tax refund is over $3,000. It’s tempting just to spend that money, but it can also help you meet some of your financial goals. For example, maybe you want to pay down your credit card debt or your mortgage this year. Putting your refund toward those debts can certainly help you in the long run. If you have debt but you’re unsure which to tackle first, talking to a financial advisor can help you create a plan. A matching tool like SmartAsset’s can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
- If you do not have any pressing debts to pay off, you may want to put your refund right into the bank. In that case, look for a high-interest savings account. Getting the highest interest rate possible will make your money work for you.
- Another way to use your refund is by putting it toward retirement. That may not sound very fun but it’s important to ensure you can live your golden years doing whatever you want to do.
Author: Derek Silva, CEPF