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tax refund delay

Before the coronavirus pandemic, your tax refund could be delayed for any of many reasons. Perhaps your numbers and your employer’s numbers didn’t match. Or you accidentally skipped a line—or an entire form. Or maybe you claimed a credit that the IRS takes longer to check. This year, however, the mostly likely reason your tax refund is delayed is that you filed a paper return.

Because paper returns could not be processed for roughly two months during the COVID-19 shutdown, a backlog of 4.7 million returns was created, according to a report by Taxpayer Advocate Service, a public watchdog. Some IRS workers returned to the office in June, but 4.7 million returns is a lot of returns to process—and unusual delays are still being reported. On the bright side, if you filed on time (by July 15) and are owed a refund, the IRS will pay interest on the refund from April 15 to the date that the refund is issued. (Interest rates are 5% per year, compounded daily, for the second quarter and 3% for the third quarter.)

Of course, the reasons for a delayed tax refund before the coronavirus crisis may still apply. Read on for more reasons and how to prevent future delays.

Go beyond taxes to build a comprehensive financial plan. Find a local financial advisor today.

How Long It Takes the IRS to Process a Tax Refund

Typically, the IRS issues a refund within 21 days of “accepting” a tax return. If you file electronically, the IRS can take up to three days to accept your return. If you mail in your return, it can take three additional weeks (the IRS has to manually enter your return into the system first). You should count another week into your time estimate if you request your refund as a check rather than a direct deposit. Check our 2020 tax refund schedule for more information or use the IRS2Go app to learn your status.

For 2019 tax returns, the IRS said it planned to issue more than 90% of refunds within 21 days of e-filing. Some refunds could take as little as 14 days. This, of course, was before the coronavirus pandemic hit and health directives closed offices, including at the IRS.

The closure did not significantly affect processing times for returns filed electronically. But as noted earlier, paper returns were simply not processed, creating a huge backlog. The IRS opened offices in June for core-mission services, including processing paper returns, but workers started on the backlog first. So if you are mailing in your return just now (or by July 15), you should expect a very long delay. The IRS is not even providing an estimate for how long.

One tangential thing to remember is that the IRS does not accept tax returns before a certain date. The earliest you could file a 2019 tax return was Jan. 27, 2020. So the earliest date anyone could expect to get a refund this year was Feb. 17. Read on for more reasons your refund may be delayed.

Reason for Tax Refund Delay: You Claim Certain Credits

If you file on the early side and claim the earned income tax credit (EITC) or the additional child tax credit (ACTC), you will have to wait a bit for a refund. According to the law, the IRS has to wait until Feb. 15 to issue a refund to taxpayers who claimed either of those credits. President’s Day and bank processing times can slow down your refund further. For 2020, the first refunds (if you claimed the EITC or ACTC) aren’t available in taxpayer bank accounts until the first week of March.

If the hold is because you filed before mid-February, there is no need to worry. The hold is not a result of mistakes or problems with your return. But if you filed later than that, the hold could also be because the IRS has questions or needs more information, in which case, you should receive a letter explaining what it requires.

If you claimed those credits, have been waiting weeks for a refund and have not received a letter from the IRS, you can check the status of your refund on the IRS website through its Where’s My Refund? tool.

Reason for Tax Refund Delay: Filing Early or Late

It feels good to get your taxes done with as soon as possible, but early filers may have to wait a bit for refunds.

One reason for this is because the IRS may still be making changes to their processes. That could include updated security measures or process tweaks due to changes in the tax code. And if the IRS needs to update or make changes, it probably won’t make them until just before tax time. This could be especially true in 2020 because of President Trump’s new tax law.

Your refund could also face a delay if you file early in the tax season because this is a high traffic time for the IRS. The same is true at the end of tax season. The majority of taxpayers file either as soon as they can or wait until close to the tax day deadline. Going through a high volume of returns will take time.

Reason for Tax Refund Delay: New Security Measures

tax refund delay

Identity theft is a big threat in today’s world. To combat the threat, the IRS maintains strict security standards. Some security measures will cause the IRS to increase processing time for returns (and refunds).

If the IRS suspects that someone has attempted to steal your identity (by filing a fake return), this could hold up your return. You would then have to wait until the IRS completes any investigating and until it can ensure that you are who you say you are.

The IRS may also convert your refund from a direct deposit to a paper check. This will delay your refund but it is simply a security measure. It protects the IRS from sending money to a bank account it does not believe is yours.

Many state governments have also said that they will take longer to process tax returns because of new security measures. A state government may also work on a different timeline than the IRS. For example, Alabama historically has not started issuing refunds until March 1. The IRS starts issuing refunds in February.

If you are trying to track your state refund, read this article on where your state refund is.

Reason for Tax Refund Delay: You Filed a Paper Return

As mentioned earlier, the IRS normally takes longer to process paper returns than electronically filed returns. That means you will wait longer for a refund—and even longer if you want your refund as a check. The IRS also takes longer to process a return and issue a refund if you file a paper return via certified mail.

Speaking of paper returns, you will need to file all amended returns (1040X) as a paper return. The IRS estimates the processing time for amended returns as somewhere between eight and 12 weeks.

Even if you file electronically, you will have to wait longer if you elect to receive your refund as a paper check. Sending a check through the mail also creates the possibility of the check getting lost or sent to the wrong address. That would delay your refund similarly to the way sending a refund to the wrong bank account would.

Reason for Tax Refund Delay: Mistakes on Your Return

If you file an incomplete return or if you have any mistakes on your tax return, the IRS will spend longer processing your return. This will slow down any potential refund. Mistakes could include mathematical errors or incorrect personal information.

Using a tax filing service, such as TurboTax, will likely eliminate mathematical errors from your return. The software will do the math for you. However, it’s still possible to make a mistake if you are inputting any information manually For example, let’s say you manually input the information from your W-2. If you earned $50,000 over the year but you accidentally input $51,000, you may run into problems.

The IRS will contact you if there are any issues with your return. In some cases, the IRS will correct small mathematical errors. That could save you the work of having to file an amended return.

Incorrect personal information will also slow down your return. As an example, let’s say you file a joint return and incorrectly input your spouse’s Social Security number (SSN). The rest of the information on your return could be correct, but the IRS may not be able to confirm that because it can’t match your spouse’s SSN.

Reason for Tax Refund Delay: Incorrect Bank Info

Most taxpayers now receive refunds via direct deposit into a bank account. When you provide your account number and bank routing number, it’s important to double check that the information is accurate. No one wants to miss out on a refund because it went to the wrong bank account.

If you entered the wrong account information, there are a few things you can do. In the case that the IRS hasn’t sent your refund yet, you can ask them to stop the direct deposit. Call the IRS toll-free at (800) 829-1040, any weekday between 7 a.m. and 7 p.m.

In the case that the IRS already sent the payment, you will need to contact the financial institution. If the institution can get the funds, it will return the refund to the IRS. The IRS will then issue your refund as a paper check. If the institution says it cannot get the funds back, you should file Form 3911, Taxpayer Statement Regarding Refund, with the IRS.

Form 3911 will allow the IRS to contact the financial institution on your behalf and attempt recovery of your refund. When you file the form, the IRS will initiate what’s called a trace. Banks have 90 days from the date of the initial trace to respond to the IRS’ request for information. However, a bank is not required to provide information to the IRS. If the bank doesn’t respond, your final option is to take civil action against the financial institution and/or the owner of the account into which your refund was deposited.

Reason for Tax Refund Delay: You Have Outstanding Debt

For certain types of debts, the IRS has the authority to garnish your tax refund. (Wage garnishment is the act of withholding money from you in order to put it toward something else.)

Common reasons that the IRS will garnish your refund include

  • You owe money for back taxes
  • You defaulted on a federal student loan
  • You owe money for child support
  • You filed a joint return and your spouse has outstanding debt

In the event that the IRS garnishes your refund, you will receive a notice explaining why it did so. If you don’t think you owed that debt, you will need to dispute it with the agency to whom the money was paid.

The Takeaway

tax refund delay

There are a number of reasons why you could experience a tax refund delay. Some reasons won’t require any additional work on your part. This is the case if you claimed certain credits or if you file at certain times. Filing a paper return or receiving your refund as a paper check will also slow things down—especially this year. Other reasons for delay may be you made a mistake or omitted information. In this case, the IRS will send you a letter. If you requested a direct deposit and provided incorrect bank information, however, you will have to track the money down. In any case, the easiest way to check on your refund is through the IRS2Go app or website tool.

Tips for Making the Most of Your Refund

  • In some states, the average federal income tax refund is over $3,000. If you lost your job during the coronavirus-caused recession, you may need to spend the refund on essentials. But if you don’t need to spend it, consider paying down your credit card debt this year. Putting your refund toward debt can certainly help you in the long run. If you have debt but are unsure which debt to tackle first, talking to a financial advisor can help you create a plan. Use our matching tool to find one. It will connect you with up to three local advisors.
  • If you do not have any pressing debts to pay off, you may want to put your refund right into the bank. In that case, look for a high-interest savings account. Getting the highest interest rate possible will make your money work for you.
  • Another way to use your refund is by putting it toward retirement. That may not sound very fun but it’s important to ensure you can live your golden years doing whatever you want to do.

Photo credit: © iStock/LPETTET, © iStock/anyaberkut, © iStock/AntonioGuillem

Derek Silva, CEPF® Derek Silva is determined to make personal finance accessible to everyone. He writes on a variety of personal finance topics for SmartAsset, serving as a retirement and credit card expert. Derek is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance® (CEPF®). He has a degree from the University of Massachusetts Amherst and has spent time as an English language teacher in the Portuguese autonomous region of the Azores. The message Derek hopes people take away from his writing is, “Don’t forget that money is just a tool to help you reach your goals and live the lifestyle you want.”
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