IRS to delay refunds for millions of poor families

Washington — The IRS is delaying tax refunds for more than 40 million low-income families this year as the agency steps up efforts to fight identity theft and fraud.

The delays will affect families claiming the earned income tax credit and the additional child tax credit. These tax breaks are geared to benefit the working poor, and many families claim both.

“For most of these people, it’s the biggest check they are going to get all year,” IRS Commissioner John Koskinen said. “We are sensitive to that.”

The tax filing season starts Jan. 23. But a new law requires the IRS to delay tax refunds for people claiming these credits until Feb. 15. Processing times will delay most of the refunds until the end of February, Koskinen said.

The delay is designed to give the agency more time to screen the returns for fraud. The IRS estimates that it issued $3.1 billion in fraudulent tax refunds to identity thieves in 2014. The year before, the agency says, it paid out $5.8 billion in fraudulent refunds. Over those two years, the IRS says it blocked nearly $47 billion in fraudulent refunds.

The earned income tax credit is one of the federal government’s largest anti-poverty programs. It has also been plagued by billions in improper payments each year, including overpayments, underpayments and fraud.

In 2014, about 29 million families received more than $72 billion in earned income credits.

The additional child tax credit also targets low-income families.

Most families with children are eligible for the standard $1,000-achild tax credit. The additional child tax credit is for low-income families who don’t owe enough in federal income tax to claim the full credit.

For example, if you owe $500 in federal income tax, you can use the $1,000 child tax credit to reduce your tax liability to zero. But you don’t get the other $500.

The additional child tax credit enables eligible families to claim the rest of the credit in the form of a tax refund.

In 2014, more than 20 million families claimed $27 billion in these credits.

Koskinen said the IRS is making progress against identity theft and fraud on refunds.

Last year, the number of people reporting to the IRS that their identities were stolen dropped by 50%, to 275,000 taxpayers, Kosinen said.