The Internal Revenue Service today issued a warning of 2017 tax refund delays for certain taxpayers, urging folks to adjust their tax withholding now. We’re talking about your 2016 taxes that are due April 15, 2017. There’s good reason to pay attention—at least there’s something you can do about it.
A couple things are to blame. First, a new tax law effective next year requires the IRS to hold refunds a few weeks for some early filers who claim the Earned Income Tax Credit and the Additional Child Tax Credit. The IRS has to hold the entire refund, not just the portion associated with those credits, until at least February 15. Second, the rise in identity theft is causing the IRS and state tax authorities to spend additional review time to protect against fraud. Additional safeguards will be set in place for the upcoming 2017 filing season.
So what’s the solution if you don’t like the idea of a tax refund delay? Adjust your tax withholding for the rest of 2016, so you get more take-home money now and a smaller refund.
The IRS gives an extra warning to taxpayers who work in the gig economy. If you have income outside of wages and salary– Schedule C self-employment income, capital gains, interest and dividends–you need to pay estimated taxes in quarterly installments. (You don’t have to make estimated payments if your tax due—after subtracting withholding and credits–is less than $1,000).
Typically taxpayers who pay estimates use what’s known as the “prior year safe harbor.” That means they pay in 100% of the prior year’s tax as estimates (or 110% if their adjusted gross income was above $150,000). Using the 100%/110% prior year safe harbor is easy but in some case it means you’re overpaying. The alternative rule–to avoid penalties for underpaying estimated tax payments—is to pay in 90% of your current year estimated tax. Always consult your local Dallas CPA with any questions you may have to make sure your calculations are correct.
Already in 2016, the IRS has issued more than 102 million tax refunds (out of 140 million individual returns), and the average refund is over $2,700. Most refunds will still be issued within 21 days or less, the IRS says.
