PSA, Floridians: 7 Little-Known Reasons the Government May Withhold Your Tax Refund
Sometimes, your tax refund might take longer than expected or even get held back for reasons you never imagined.
There are several little-known factors that can cause a delay or withholding of your refund. Learn what these reasons are and how you can avoid any surprises come tax time.
Miscalculation of Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a valuable benefit for many working families, but errors in calculating this credit can cause delays. If you miscalculate your EITC, the IRS might hold your refund until they can confirm the correct amount.
This can happen when there is confusion about your income or number of dependents.
The EITC tends to have a high error rate. Based on a study by the IRS’s National Research Program, they estimated that in 2013, 22.1% to 25.9% of EITC program payments weren’t correct. Even if you believe you’ve calculated it correctly, a small mistake can lead to extra processing time for your refund.
Unpaid Child Support and Federal Student Loans
If you owe money for child support, the U.S. government can legally take your refund to cover those payments. The reason is the Treasury Offset Program, which may reduce your tax refund if you have any overdue child support payments.
Although the Treasury Offset Program has been around for decades, many Americans new to paying child support are surprised when they find out their refund might be used for this purpose.
Similarly, if you have unpaid federal student loans, your refund might be used to pay them down. The government can offset refunds to settle debts owed to federal agencies. This means that even if you filed correctly, past obligations to the government can impact your current refund.
Outstanding Debts to State Agencies
Not all debts come from the federal government. Sometimes, state agencies may also have claims on your refund.
If you owe state taxes or have unpaid fines, your state can withhold part or all of your tax refund to cover these debts. This process works similarly to federal offsets.
States have their own rules for withholding refunds, and these may not be well known to taxpayers. Before filing, it helps to check with your state’s revenue department if you’re unsure about any outstanding balances. Staying on top of state debts can help ensure you receive your full refund.
Identity Theft and Fraud Alerts
Identity theft is a scary problem, and the IRS takes it seriously. If it suspects that someone might be trying to steal your identity, they can delay your refund while they check your information.
This extra step is to help protect you from fraud and ensure that your money doesn’t end up in the wrong hands.
Even if you aren’t an identity theft victim, sometimes your tax refund can be delayed if your return shows signs of suspicious activity. This could happen if you recently changed your address or if there are multiple returns filed with your Social Security number. The IRS’s extra security measures mean that your refund might take a little longer, but it’s all in the name of safety.
IRS Audit or Error Checks
The IRS sometimes selects returns for additional review, even when there’s no obvious mistake. An audit or error check can be triggered by several factors, including inconsistencies in the data you provided.
When your return is flagged, the IRS takes a closer look to verify the information, which can delay your refund.
While it might seem frustrating, the additional review is there to ensure all Americans get a fair tax deal. And just in case you need it, this is an important reminder to file your taxes carefully and keep accurate records.
Amended Returns
In some but not too frequent cases, filing an amended return can lead to delays in receiving your tax refund. The IRS states it typically takes 8 to 12 weeks to process Form 1040-X. But sometimes, it can take as long as 16 weeks.
One of the biggest reasons that amended tax returns can take longer to process is that it’s yet another opportunity for you to make an error. If the form isn’t complete, isn’t signed, etc., it’ll delay your refund.
Mistakes on Your Tax Return
Finally, simple errors on your tax return can cause delays. Even a small math mistake or a missed signature can signal the IRS to take a closer look at your return.
When the IRS finds these errors, they may hold your refund until they are corrected. For more details on common errors, check out the IRS’s tips on filing accurately at IRS Filing Tips.
Sometimes, it isn’t just about math mistakes. A wrong Social Security number or incorrect bank details can also lead to a delay. The government uses these details to verify your identity and ensure that the refund goes to the right person. Even a small mix-up means extra work for the IRS, which can hold up your refund.
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