Over the past few years, the use of refundable tax credits has increased.  Due to the significant potential – and actual – fraud, Congress has required the Internal Revenue Service to put into places certain measures to combat fraud, which costs the Federal Government over $10 billion dollars per year.

For more information on reforming these tax credits, click here.

Accelerated Form Filing Dates

Worker payment reports (Forms W-2 and 1099) must be filed with the federal government by January 31.  The prior law required forms to be given to workers by January 31, but the filing copies were due at a later date.  This new law accelerates the due date.

Delayed Refund Dates

Although the IRS will begin accepting income tax returns on January 23, 2017, taxpayers claiming the following credits will not receive their refunds until at least February 15, and could possibly be delayed as late as February 27.

This delay allows the IRS computers to double check W-2 and 1099 information for accuracy to ensure that taxpayers are eligible for the credits being claimed.

Affected Tax Credits

Taxpayers who will be affected by this change include those claiming:

  • Earned Income Tax Credit
  • Refundable Child Tax Credit
  • American Opportunity Tax Credit (formerly Hope Credit)

Increased Due Diligence

The IRS now requires increased due diligence by tax preparers for any tax return filed claiming the affected tax credits.  The Refundable Child Tax Credit and American Opportunity Credit now require, and are subject to the same penalties, as the Earned Income tax credit.  Paid preparers must fill out Form 8867 for each claim.  The penalty for failure to comply with filing and record keeping requirements is $505 per failure.

Clients who claim, or expect to claim, the credits, should bring the following documentation to their appointment:

  • (Divorced Parents) Proof that the child should be claimed by you.
  • (Divorced Parents) Documentation of the child’s residence.
  • (College Tuition)Schedule of Tuition PAID.
  • (Self-Employed) Documentation of income and expenses.

Other documentation may be required as needed.

Increased Fees

Clients who are claiming the Refundable Child Tax Credit and American Opportunity Tax Credit who require Form 8867 will be subject to an additional fee of $100 for the preparation of their income taxes.  Clients qualifying for Earned Income Tax Credit will not have any increases, as the additional charge has been in effect for several years.

If you have any questions concerning these tax credits, or your eligibility, please contact Tax Planning Specialist Monica Wood, EA (monica@blauco.com) at 480-946-7732.