For those who claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) for 2016 Taxes, refunds will be delayed this year for this first time by knucklehead Congress.
Refunds for EITC and ACTC recipients will be delayed until late February, which may cause problems for millions of financially-strapped taxpayers who expect to receive their refunds several weeks earlier.
The National Consumer Law Center (NCLC) and Consumer Federation of America (CFA) urge Americans to also be aware of fraud and errors from unregulated preparers.
The majority of paid tax preparers are not required to meet any minimum educational, competency, or training standards. Consumers are at risk from preparers who make errors or commit fraud.
Additional, the NCLC and CFA warn about a confusing landscape of financial products. Paid preparers offer and promote financial products that vary in their cost and usefulness. “No fee” refund anticipation loans (RALs) do not charge taxpayers a direct fee and may be tempting to taxpayers facing delayed refunds. But unscrupulous preparers could pad their fees to borrowers and some lenders might impose a hidden fee by charging more if borrowers later opt for another product, a refund anticipation check.
Here’s more skinny on 2017 Tax Season:
Many low-income taxpayers will face an unpleasant surprise — their refunds will be delayed due to a new law passed by Congress. The Protecting Americans from Tax Hikes (PATH) Act requires the IRS to delay refunds to taxpayers claiming the EITC or ACTC until at least February 15, 2017, and more likely until late February. The IRS must delay the entire refund – even the portion not associated with the EITC and ACTC – until that date.
The PATH Act mandated the tax refund delay in order to give the IRS more time to help detect and prevent fraud involving the EITC and ACTC. The IRS has cautioned that, while it will begin to release EITC/ACTC refunds starting February 15, these refunds likely won’t arrive in bank accounts or prepaid cards until the week of February 27 due to “several factors, including banking and financial systems needing time to process deposits.”
The tax refund delay will likely cause problems for many taxpayers who receive the EITC or ACTC. These taxpayers are low-income working taxpayers, the vast majority of whom have children. They often depend on receiving their refunds early in the tax season to help pay for groceries, holiday bills, overdue utility debt, or other pressing expenses.
Even though refunds may be delayed, taxpayers should still file as early as possible. In addition to making sure the refund can be processed as soon as possible after February 15, early filing provides a cushion of time if a tax return has other issues, such as math errors.
Information on the PATH Act tax delay is available from the IRS. The Consumer Financial Protection Bureau has advice on dealing with financial issues arising from the delay.
Lack of minimum standards for paid tax preparers continues to be a serious problem plaguing taxpayers. In all but four states (CA, MD, NY and OR), paid tax preparers are not required to meet any minimum educational, competency, or training standards. While some tax preparers are licensed as certified public accountants (CPAs) or credentialed by the IRS as enrolled agents, these certifications are not mandatory and most preparers do not have them. Indeed, the only tax preparers — apart from CPAs, attorneys and enrolled agents — required to pass a test are the unpaid volunteers at Volunteer Income Tax Assistance (VITA) and AARP Tax-Aide sites.
The lack of competency standards for paid tax preparers exposes consumers to potential errors or even fraud, as well as potentially costing federal and state governments tens of millions of dollars in lost tax revenue. Multiple rounds of mystery shopper tests of tax preparers have found high levels of errors, ranging from 25% to over 90%, and even instances of fraud.
With the PATH Act tax refund delay, “no fee” RALs may prove attractive to many consumers. These are loans that are secured by the taxpayer’s refund, but the lender does not charge the taxpayer a fee or finance charge. Instead, some lenders charge the preparer a fee. Many lenders and preparers call these products an “advance,” but they are actually a loan.
Advocates recommend that taxpayers avoid no fee RALs if possible. One risk is that some unscrupulous tax preparers might charge more in their tax preparation fees to “no fee” RAL borrowers. Also, last tax season lenders such as EPS and River City Bank appeared to actually impose a price for “no fee” RALs by charging a higher price for a refund anticipation check (RAC) if the preparer was offering these loans. (With RACs, the bank opens a temporary bank account into which the IRS direct deposits the refund monies. After the refund is deposited, the bank issues the consumer a check or prepaid card and closes the temporary account. RACs do not deliver refund monies any faster than the IRS can, yet cost $25 to $60.)
If a taxpayer is determined to get a “no fee” RAL, advocates advise that it is absolutely critical to choose a preparer very carefully.
Some of the questions a taxpayer should ask are:
• What kind of training do you have in tax preparation? Have you taken formal classes or a course in tax preparation?
• How long have you been preparing taxes?
• Do you have any credentials (attorney, CPA, enrolled agent or completing voluntary IRS certification)?
• How much will I be charged for tax preparation? Will I be charged more if I get a loan or an “advance’?
• Are there any other fees that I will be charged?
Taxpayers may wish to consider a credentialed preparer, such as a Certified Public Accountant, an enrolled agent, an attorney, or a preparer who has voluntarily completed the IRS Annual Filing Season Program.