Reasons for a Tax Refund Delay

How to Get a Small Business Tax Refund

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While you may dread preparing and filing taxes, there's one thing you may look forward to and that is receiving a tax refund.

For the 2018 tax year, the average refund was $2,640 through mid-February 2019. While refunds are down from the previous year for some Americans who failed to adjust their tax withholding in the wake of tax reform, that's still a generous windfall.

If you file your return electronically, the Internal Revenue Service typically processes your refund within three weeks. Filing a paper return can extend the refund process to between six and eight weeks. But what if you find yourself waiting even longer to get your money?

There are several things that could lead to a tax refund delay. If you have yet to file your taxes, or you've already filed and are anticipating your refund, here are the most common reasons your money may be slow in coming.

1. Incorrect Personal Information

One reason cited by the IRS for a tax refund delay is personal information that's entered incorrectly on your return. If the name and Social Security number included on your return don't match up with what's in the IRS system, your return could be flagged. If this happens, you'd have to wait for your return to be manually reviewed and verified before your refund can be issued.

2. Incorrect Income or Deduction Information

Math errors can also trip you up and result in a tax refund delay. That includes errors such as incorrectly entered income or deductible expenses. If the IRS catches a math error on your report, they'll send you a CP2000 Notice explaining the nature of the error. If the error is the result of a mistake on your end, you can call the IRS to have it corrected. Be aware, however, that correcting math errors on your return could result in owing additional taxes for the year.

3. Your Refund Was Offset

In some cases, the Bureau of the Fiscal Service (BFS) may reduce or withhold your tax refund if you owe certain types of debt. This is called an offset and it can apply to:

  • Past due child support
  • Non-tax debts owed to federal agencies (such as federal student loans)
  • Unpaid state income tax obligations
  • Certain unemployment compensation debts owed to a state

The BFS will send you a notice if part of your tax refund is offset to pay a debt. You can dispute the debt with the agency listed on the notice as the payee or with the BFS if you're disputing the amount that was offset from your refund.

4. Unpaid Federal Taxes

Your refund can also be offset if you have an outstanding federal tax bill. In that scenario, the IRS will send you a CP49 Notice, explaining that part or all of your refund was used to satisfy a federal tax debt.

If you still owe additional taxes after your refund has been offset, you'll need to take further action. Ideally, you'd be able to pay any remaining tax liability in full but if not, you may consider arranging an installment payment plan with the IRS. Alternately, you could submit an Offer in Compromise, which effectively allows you to settle the tax debt with the IRS for less than the full amount owed.

5. Possible Identity Theft

The IRS may enforce a tax refund delay if it suspects that your identity has been stolen and used to fraudulently file a return or claim a refund in your name. If necessary, the IRS will send you a 5071C letter asking you to verify your information before your refund can be released.

6. IRS Audit

The IRS audits a very small number of returns each year. For the 2016 calendar year, the most recent year for which audit data is available, the IRS took a closer look at just 0.5% of all returns filed. On the off-chance that your return is selected for an audit––either randomly or because your return triggered a red flag with the IRS––the processing of your refund might naturally be delayed until Uncle Sam is able to accurately determine what you owe.

7. Incorrect Bank Account Information

One final cause for a tax refund delay may not be with the processing of your refund; instead, it may lie with the bank account information you provide if you choose to e-file and receive your refund via direct deposit. If you enter the wrong routing or account number, you could be waiting longer for your refund.

There are several ways to handle this situation, depending on what happened to your refund after you submitted your bank account information and filed your return. If you:

  • Omit a digit in your bank account or routing number and the number doesn't pass the IRS validation guidelines, your direct deposit will be canceled and you 'll be issued a paper check instead.
  • Incorrectly enter your bank account or routing number but it passes the validation check, you'll receive a paper check if the financial institution receiving the direct deposit refund rejects it.
  • Incorrectly enter your bank account or routing number and the designated financial institution accepts the deposit, you'll have to contact that bank to try and get your money back.

That last scenario is the most dangerous because the IRS doesn't intervene if the bank refuses to return your refund. In that situation, your only recourse may be to sue the bank to recover your refund.

Be Patient and Plan Wisely

A tax refund delay may be inconvenient but you can use a longer wait to your advantage by thinking over what you want to do with your refund. Whether it's growing your emergency fund or paying down debt, consider how you can make the most of your refund once it finally arrives.