Tax Refund Delays 2023
Table of Contents
Are you aware that a significant number of Americans are struggling financially and would need their annual tax refund to help them cushion their expenses, despite the falling inflation? Well, a survey conducted by Credit Karma revealed that 30% of Americans rely on a tax refund to make ends meet. Surprisingly, 40% of Gen Zers and 46% of millennials in the United States fall into this category.
As more Americans continue to count on yearly tax refunds to save them from their financial difficulties, 2023 is likely to be a different story due to tax refund delays. The IRS has already warned taxpayers that tax refunds will be significantly reduced in 2023 due to the expiry of many pandemic-era tax breaks such as the bigger child tax credits among other charitable deductions.
Does this mean you should let the government keep your money? No! But if you’re expecting a tax refund, then, you should proceed and file your tax return as soon as possible. You’re likely to experience tax refund delays in 2023 due to a couple of reasons;
IRS Staffing
It is estimated that the IRS won’t start processing your tax return until January 23, 2023; which is bad news for early filers. Over the last few years, the IRS has been notably short-staffed and the pandemic made things worse. In other words, expect tax return delays if you’re planning to mail documents to the IRS. Last year, it took months for the IRS to clear through the backlog. Due to a huge staffing shortage, the IRS is still delayed in handling mail returns and other correspondence.
The new Congress intends to stop hiring new personnel at the agency in favor of the IRS e-File platform. Even though the most common advice would be to electronically file for tax returns whenever possible to minimize delays, you’ll still be stuck waiting when you request anything that requires an actual human, for example, requests for information or updates.
Laws and Regulations
There has been a significant increase in the number of identity theft related to tax in the last few years. It’s simple! If you’re a crook, you only need to file as many tax returns as quickly as possible. Since the IRS operates on a first-come, first serve basis, a criminal would file a tax return in your name before you do, and end up stealing your money. It is estimated that the IRS lost $1.3 billion in fraudulent tax refunds. To reduce further losses related to identity theft, Congress passed a law that delays all the tax refunds being issued by the IRS. In other words, your tax refund in 2023 will be delayed because the government doesn’t want to lose more money, especially when claiming certain deductions that are often used by identity thieves.
If you’ve ever been a victim of identity theft, then, you’d appreciate these laws and regulations put in place by Congress. Being a victim of identity theft, you’ll be forced to submit tons of documents to the IRS just to get the issue resolved. Furthermore, the process can take several weeks or months depending on your case, it’s not an easy process!
What Types of Tax Returns are mostly affected?
The introduction of new laws introduced by Congress does not apply to all types of tax returns. The two most affected tax returns are the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). These two types of taxes are known as Refundable Tax Credits, which implies that anyone can receive a refund for these two tax credits even if they owe no taxes because of low or moderate income. For this reason, they are the most common tax credits taken by criminals. Unfortunately, this will affect genuine low, and moderate-income tax filers since they’ll have to wait longer for tax refunds this year.
Will Tax Refund Delays be reduced in 2023?
The IRS intends to start the 2023 filing season in better shape than the last two years, that’s according to the latest report. The same report indicated that the IRS had a backlog of 4.7 million original individual returns and 3.2 million original business returns and 3.6 million amended returns for individuals and businesses combined at the start of 2020. The IRS had reduced the backlog to about a million original individual returns, 1.5 million amended returns, and I.5 million original business returns as of December 9, 2022. With such progress, the IRS will likely start processing paper returns filed in the last few months for the year 2022 much earlier which will reduce tax refund delays to a certain extent. Overall, the IRS claims to have made significant strides in working through more inventory over the past 12 months. This is after the agency was able to get rid of a backlog of more than 20 million unprocessed paper returns and correspondence due to the pandemic disruption.
How Long Will You Wait for Tax Refunds in 2023?
In 2023, the IRS still estimates that more than 80% of people will receive their tax refunds not later than 21 days. However, this may vary based on the time you file your tax return. If you file it early, the IRS will hold your refund until February 15, 2023, before processing your refund request.
How can you avoid tax refund delays in 2023?
It’s impossible to avoid tax refund delays in 2023, however, there are a few ways to avoid any further delays. First, always file electronic returns and choose a direct deposit for your tax refund. Even though the IRS issues tax refunds within 21 days, a paper-filed report may take longer to process. Considering the IRS faced a chaotic mess that delayed millions of income tax refunds in the past, just assume that a document will get lost any time you mail it to the IRS. Secondly, avoid tax return errors such as incorrect personal information such as your Social Security number. Remember, your 2023 tax refund is already delayed by law, tax return errors will only delay your tax refund further since extra time will be required to resolve the issue.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
STREAMLINED AMNESTY
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
What are qualified educational expenses?
A qualified educational expense is an amount payable by an individual to a recognized educational institution to facilitate his or her enrollment, and studies at the learning institution. Some examples of qualified educational expenses include enrolment charges, tuition, school fees, and purchases of books among other school learning equipment. Note that living expenses or the purchase of personal items such as laptops or cell phones are not considered qualified educational expenses which makes them taxable.
Estimated Tax Payments
This is the tax payable quarterly by persons who do not have tax applicable deducted from their paychecks automatically. Estimated tax payments are made by freelancers and small businesses based on their earnings in a year. The tax must be accompanied by an IRS form 1040ES.
What is IRS Form 1098-T?
The IRS has different types of forms that different groups of people can use to report their income and the 1098-T is just one of many. This form is often generated by educational institutions of higher learning as a tuition remittance statement that is forwarded to the IRS. As a student, you are entitled to a copy of the IRS Form 1098-T.
Scholarships vs. grants
The world is full of donors and foundations that offer scholarships and grants to a varying number of beneficiaries. While a scholarship is solely meant to be used in the advancement of higher learning and research, grants are awarded for other purposes such as the expansion of businesses, support of certain groups, or humanitarian activities among others. For this article, however, we are going to focus on scholarship vs. academic grants. In the U.S., both scholarship and academic grants are considered tax-free as long as they are used to pay for fees, tuition, books, academic supplies, and equipment required for the study.
Despite the possibility of having to pay taxes on your scholarship fund or grant, you should familiarize yourself with ways of enjoying tax deductibles. One way to do this is through the student loan deduction interest. Well, you are entitled to a tax deduction for a student loan you took out specifically to pay for education expenses in an institution of higher learning. The maximum deduction is either $2500 or the actual interest you paid the whole year whichever is less.
American Opportunity Credit and the Lifetime Learning Credit
Both the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC) are tax credits meant to offset post-secondary education expenses. However, there are key differences between the two credits. First, the AOC can be used for tuition and other course materials such as books and supplies. While the AOC is capped at $2,500 per annum, LLC is capped at $2,000. While the AOC is only available for the first four years of post-secondary education, the LLC can be claimed for an unlimited number of years by an eligible student.
Since both the AOC and the LLC are tax credits, they are used to reduce the amount of taxes owed by a student or taxpayer. In other words, when you claim the AOC or LLC on your tax return, you’ll automatically reduce the amount of taxes you owe dollar for dollar until you hit the maximum credit amount. But what happens if the amount of taxes you owe? Well, you can receive a refund for a portion of the credit since AOC is refundable, but LLC is non-refundable and it can only reduce your tax bill it will not result in a refund if the credit is greater than the amount of taxes you owe. It is important to understand that AOC and LLC are mutually exclusive and both cannot be claimed by a single student in the same year.
How to maximize your scholarship and tax credits?
Perhaps the best way to maximize your scholarship fund is to spend it on qualified education expenses leaving little or nothing to the IRS to consider income. This will reduce the amount of tax payable significantly. Since you don’t have to be a full-time student or a degree student to benefit from the Lifetime Learning Tax Credit, why not take advantage and claim Lifetime Learning Tax Credit for any number of years?
Conclusion
It is a requirement that any money earned from the sale of products or services has to be declared to the IRS and the applicable tax remitted. But what happens in the case of a scholarship fund or grants? As long as the funds are used for the intended purpose (supporting academic activities) then, they are not reportable to the IRS as taxable. However, if you use it to cover other related living expenses, be sure to report it to the IRS. Finally, always stay on top of your tax reporting and remittance to avoid incurring IRS penalties.
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