A new federal law aimed at preventing tax return fraud could cause some local families to see their tax return delayed.
In 2015 the Protecting Americans from Tax Hikes (PATH) Act became law and was enacted that same year. The PATH Act made several changes to tax laws, with the Internal Revenue Service said was designed to benefit taxpayers and their families.
However, one portion of the law is drawing criticism for the potentially negative impact it will have on those on the bottom end of the tax scale.
“Section 201 of this new law mandates that no credit or refund for an overpayment for a taxable year shall be made to a taxpayer before Feb. 15 if the taxpayer claimed the Earned Income Tax Credit or Additional Child Tax Credit on the return,” said a statement released by the IRS regarding the PATH Act and it’s impact on taxpayers. “This change begins Jan. 1, 2017, and may affect some returns filed early in 2017. Additional information is listed below.”
What this means is those individuals filing for their tax return to are eligible for the Earned Income Tax Credit or Additional Child Tax Credit will not receive their tax refund until Feb. 15 or later.
“A lot of our lower income families rely on their return to live on, to pay their rent or other bills,” said Darlene Cook, owner and operator of the Liberty Tax Service locations in Elizabethton and Johnson City. “Some of them let their bills go a bit so they can make Christmas special and they rely on their return to get caught up.”
Cook also noted those families also typically file for their returns early based on her experience. She also said the families rely heavily on the money they receive from their tax returns.
“What I’ve found in my 34 years of tax preparation is these people use this money to get caught up on bills, buy cars, buy a mattress, buy tires, things they have been putting off,” she said. “Sometimes is the only time they are caught up on their bills.”
“With this delay it is going to be a huge impact on them and on their landlords and secondary people who rely on them to get caught up on their debt,” she added. “It’s also going to effect secondary businesses — like Walmart and Target — where these people go to spend their returns. I see it having an impact in many, many ways that we don’t comprehend yet.”
According to the IRS, the PATH Act provides the agency with additional time to help detect and prevent revenue lost due to identity theft and refund fraud.
“This is one more step the IRS is taking to ensure taxpayers receive the refund they are owed,” the statement released by the IRS said. “The IRS plans to work closely with stakeholders and IRS partners to help the public understand this process before they file their tax returns and ensure a smooth transition for this important law change.”
Cook said most of the taxpayers she has spoken with are unaware of the major change.
“What I’ve been seeing in the last week is my phone is blowing up with people asking questions. I’m telling people about the PATH Act and nobody has heard of it,” she said.
In addition to the majority of the public being uniformed about the new law, Cook said she personally does not feel the new law will be effective the way the IRS believes.
“The government is trying to deter fraud and I don’t think that delaying these refunds is going to do anything to fraud,” she said.
As a way of trying to help their customers, Cook said Liberty Tax Service decided at the corporate level to offer a refund advance to those individuals facing the delay because of the new law.
“Because Liberty Tax Service recognizes how important the timing of refunds can be for many American families, particularly those with low to moderate income, we are working with Republic Bank and Trust Company, member FDIC, to offer an Easy Advance loan of up to $1,300 to eligible taxpayers at participating Liberty Tax Service locations,” said a release from the Liberty Tax Service corporate headquarters. “There are no fees or interest associated with the loan, which is secured by the tax refund.”
Cook said her three locations in the Tri-Cities — one in Elizabethton and two in Johnson City — are all participating in the Easy Advance loan program.
“This was the only way we could get some money into their pockets to help them out before that Feb. 15 date,” Cook said, adding most of the affected families live week-to-week.
For the time being, Cook said she and her employees are working hard to make sure their customers and other taxpayers are aware of the new law and how it could potentially affect them.
“I don’t want people to get caught with their pants down expecting to get that refund on Feb. 1 when it’s not coming until Feb. 15 through Feb. 27.”
For more information on the PATH Act visit the IRS website at www.IRS.gov. For more information on tax questions or how the new law could affect you, Cook invites taxpayers to call their local Liberty Tax Service office.