2016 Changes to EITC, Child Tax and Education Credits, and 2017 Filing Season Refund Delays for Returns with EITC
As the main part of the 2016 filing season comes to a close, it is time to emphasize the coming important changes to the preparer due diligence requirements, refundable credits, and refunds for the 2017 filing season.
The December 2015 extender bill did more than just extend the expiring tax provisions. In the Protecting Americans from Tax Hikes (PATH) Act of 2015, Congress included a “program integrity” section that dealt with the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and American Opportunity Education Tax Credit (AOTC).
Below is a summary of what these changes are:
Refunds for Federal Returns that Claim EITC will not be Released Until February 15 Beginning with the 2017 Filing Season
The integrity provision of the PATH Act that will have the greatest impact on taxpayers that claim EITC is the one that requires the IRS to not release refunds for returns that claim EITC or the Additional Child Tax Credit until February 15 beginning with the 2017 filing season. Therefore, any return claiming the EITC or CTC credits that is prepared in the early part of the filing season will not be released for up to 4 weeks (depending on when the return is filed) instead of the standard 21 days or less timeframe.
Expansion of Preparer Due Diligence Requirements
The PATH Act expands the EITC due diligence requirements under Code Section 6695 (including the $500 penalty) to now include the Child Tax Credit and the American Opportunity Education Credit beginning with 2016 individual federal returns.
This means that the IRS will be making changes to Form 8867 (Paid Preparer’s Earned Income Tax Credit Checklist). The form will be renamed and additional due diligence related questions will be added for these two additional credits.
The IRS is in the process of modifying the due diligence regulations for the addition of the Child Tax Credit and the American Opportunity Education Credit. When the IRS releases these regulations, we will give you more details on what they contain and what changes will be made to the Tax Year 2016 Form 8867.
Earned Income Tax Credit (EITC) Changes
The PATH Act made the following changes that will affect individuals who claim EITC on their returns beginning with Tax Year 2016 tax returns:
- Individuals cannot file an amended return to claim EITC for prior years that a qualifying child did not have a Social Security Number. This provision went into effect on the date the PATH Act became law on December 18, 2015.
- The IRS can bar an individual from claiming EITC for 10 years if the IRS finds they have fraudulently claimed the credit.
- The EITC is now subject to the penalty for erroneous claim for refunds and credits.
- Incorrectly claimed refundable credits will now be taken into account when determining the underpayment penalty.
Changes for Child Tax Credit and the American Opportunity Education Credit
The PATH Act made the following changes for returns that claim the child tax credit or the American Opportunity credit beginning with Tax Year 2016 tax returns:
- If the IRS determines that an individual has intentionally disregarded the rules for claiming the Child Tax Credit and/or the American Opportunity Education Credit they can bar them for two years from claiming either or both of these credits.
- Individuals cannot file an amended return to claim the Child Tax Credit or the American Opportunity Education Credit for prior years that a qualifying child did not have an ITIN or SSN.
- The EIN of the educational institution will be required to be reported on Form 8863. If it is missing the IRS will reject the return.