Delayed refunds and increased audits brought on by the new procedural rules associated with the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) are set to begin in January 2017. The PATH Act, created to benefit taxpayers and their families, mandates that no refund, or partial refund, will be issued before Feb. 15 to taxpayers who claim the Additional Child Tax Credit (ACTC) or the Earned Income Tax Credit (EITC) on their return. In practice, the new requirement makes the $3,000 (unindexed) threshold amount permanent on CTC and will help reduce the likelihood of refund fraud perpetuated by fabricated wages and unsupported or misrepresented withholdings.
For tax professionals, the key is to help clients avoid late filings. It is important that clients who typically claim ACTC or EITC credits and are eligible for refunds understand they need to file early this tax season, in order to offset the PATH Act funding delays. Remind the taxpayer that no one could speed up their refund and that they should plan ahead for the delay in receiving their refund.
In addition, also consider that coming out of the holiday season, clients are often short on cash and delay tax return preparation because they need more time; they may not have the money to pay tax preparation fees earlier.
One way to help solve this dilemma is with Pay-by-Refund. When you, the tax professional, enroll in Pay-by-Refund, your clients can pay your tax preparation fees later. They pay them directly out of their federal refund without any upfront, out-of-pocket expenses. Clients only pay a one-time $35 setup fee1 for this service, which also can be paid out of their refund. Then, they choose to receive their refund in one of three ways: by check, via direct deposit or with American Express Serve®, a debit account with a reloadable card.
There’s no cost for tax professionals to enroll in Pay-by-Refund. Plus, it offers the added convenience of pulling your fees directly from the client’s refund, and depositing them into your checking or savings account at the time of funding. Again, it is important to remind the taxpayer that choosing this option will not speed up their refund.
Audit Assistance and ID Theft Restoration
The PATH Act will also result in greater scrutiny of EITC and ACTC claims that will likely affect the rate of IRS requests for supporting documents related to these claims. Documents may include family court evidence, school records and medical reports. Typically arriving in February and March, these types of IRS letters are time-consuming for tax professionals and onerous for some clients to respond to.
Audit Assistance & ID Theft Restoration (Audit Assistance) is a simple, practical approach to adding a little peace of mind to any individual’s return. Offered by Tax Protection Plus, Audit Assistance is an affordable way for tax professionals to save time, and for taxpayers and their families to get an additional layer of support doing documentation legwork at the height of tax season. Experienced and certified case resolution experts are available to collaborate with tax preparers and to work directly with clients, if it makes sense, to help them understand procedural next steps, as well as reach out to assist in collecting and organizing necessary documentation. Audit Assistance also includes other time-saving services, including help with tax debt relief, tax preparation guarantees, tax fraud assistance, Spanish-language support and identity theft restoration.
With delayed refunds and the prospect of increased audits on the horizon, tax year 2016 is shaping up to be dynamic and challenging. Remember, you can help offset some of those concerns for clients who file ACTCs and EITCs by doing the following:
- Reaching out early and helping them complete and file their tax return as early as possible.
- Deferring payment of your tax return prep fees with Pay-by-Refund.
- Making them aware of any peace-of-mind solutions, such as Audit Assistance & ID Theft Restoration.
1The one-time $35 setup fee is for the federal return only. There may be a separate charge for state filing. For important offers, details, and disclaimers please visit here.