Tax Planning

Tax refunds will be late for some in 2017

The Internal Revenue Service headquarters in Washington.
Andrew Harrer | Bloomberg | Getty Images

Some people may wait a little longer for their tax refunds next spring.

Households that file early and claim the earned income tax credit or the additional child tax credit won't see their refunds until after Feb. 15. The delay affects only those taxpayers.

The Internal Revenue Service said the delays are the result of a new anti-fraud regulation that will take effect in 2017. The rule will give the agency more time to sniff out phony returns and prevent refunds from going to scammers.

You should still file early, however.

"One thing we've always told people to avoid being subject to tax fraud is to file as early as you can," said Tim Steffen, director of financial planning at Robert W. Baird & Co. "With the refund delayed, that's even more reason to get it in a little sooner."

The IRS said most refunds will be issued within the normal time frame of 21 days.

"We'll be focusing on awareness of this change throughout the fall," said IRS Commissioner John Koskinen in a statement. "But it's important for taxpayers who might be affected by this to be aware of the change for their planning purposes."

Cash is at stake

Over time, the size of refunds has increased, making tax fraud a bonanza for scammers. So far in 2016, the IRS has distributed more than 102 million tax refunds, with the average amount more than $2,700.

Fraudsters are quick to submit fake returns in a bid to get a refund before the actual taxpayer turns in his or her documents. Often there is a large criminal enterprise at work, stealing Social Security numbers, filing the fake returns and collecting the refund, according to the Justice Department.

The two credits at the center of the IRS efforts are especially promising to thieves.

"The earned income tax credit and the additional child tax credit are refundable, so you get back more than you paid in taxes if you qualify," said Debbie J. Freeman, director of tax and financial planning at Peak Financial Advisors in Denver.

Refundable tax credits reduce the amount of federal taxes you owe on a dollar-for-dollar basis. They result in a refund if the amount of taxes owed is less than the credit given.

In the 2013 filing season, scammers filed more than 5 million fake returns in an attempt to make off with $30 billion. The IRS was able to halt or recover $24 billion in ill-gotten refunds, according to the Justice Department.