Delayed Refunds for Many 2016 Tax Returns

There are some important changes that will impact your individual income tax return for tax year 2016.  The changes range from refund delays, due diligence requirements and updated exemption and deduction amounts.

Any tax return that claims the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) will be delayed beginning with this filing season.  In prior years, these refunds were issued no differently than returns that were not claiming these credits.  As a requirement of the PATH Act, no refunds will be issued until February 15, 2017 to allow for review and verification of eligibility to claim these credits. The entire refund will be held, not just the amounts of the credits claimed.

The PATH Act has also increased the due diligence required of tax preparers to include the Child Tax Credit (CTC) and the American Opportunity Tax Credit (AOTC).  In the past, due diligence was only required on the EITC.  Form 8867 has been modified to include questions that will help determine the eligibility for all three of these credits.  Failure to comply with this new requirement will result in a penalty of $510 so there is added incentive for tax professionals to comply with the new requirement.

The updated amounts for some common items are as follows:  the personal exemption amount has increased from $4,000 to $4,050 per exemption; the standard deduction for filing status of single, married filing separately and married filing jointly remains unchanged but the amount for head of household has increased from $9,250 to $9,300; the standard business mileage rate has dropped from $.575 per mile to $.54 per mile; the adoption credit has increased from $13,400 to $13,460.

Some states are requiring additional identity verification on tax returns such as entering your driver’s license information.  While Virginia has not yet implemented this verification step, it is likely to occur in the near future so be prepared to provide this information to you tax preparer.

These are just a few items that are changing for the 2016 tax filing season.