Tax credits are incredibly valuable to those who receive them. 

Credits work differently from deductions. Instead of reducing your taxable income, so you save money by not having to pay taxes on that income, credits reduce the tax due on a dollar-for-dollar basis. 

Say, for example, you get a $2,000 tax credit. If you owed $5,000 in taxes, your $2,000 credit means you’ll only owe $3,000.

If you got a $2,000 deduction, on the other hand, it would just bring your taxable income down. So if you made $50,000, you’d only be taxed on $48,000. Your $2,000 credit saves you $2,000, but if you were in the 22% tax bracket, your $2,000 deduction saves you $440. 

If you are eligible for credits, you should always claim them. However, you also need to heed this stern warning from the IRS if you are claiming two of the most popular tax credits available.

If you claim two particular tax credits, expect your refund to take significantly longer to arrive.

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IRS issues important warning on tax credits

According to the IRS, if you claim two specific tax credits, your tax refund will arrive much later than it does for other filers. Those two tax credits include:

  • The Earned Income Tax Credit (EITC)
  • The Additional Child Tax Credit

While customarily, people who submit tax returns can expect a refund within 21 days of e-filing their taxes, according to the IRS, those who claim either of these credits must wait until at least March 2 to get their refunds.

Plus, refunds will only arrive that early if the filer chooses direct deposit and there aren’t any other issues with their return. 

Why tax refunds will be delayed for those who claim certain credits

The reason tax refunds will be delayed for tax filers claiming these two popular credits is the PATH Act of 2015. 

This law prohibits the IRS from issuing either the Earned Income Tax Credit refunds or the Additional Child Tax Credit refunds until mid-February, regardless of how soon in the tax filing year you submit your return. 

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This extra time enables the IRS to take extra steps to fight fraud, including verifying your income and your eligibility for the credits that you are claiming. 

“By law, we can’t issue EITC or ACTC refunds before mid-February. This includes your entire refund, not just the part that’s related to the credit you claimed on your tax return,” the IRS website says. “If you claim the EITC or ACTC, we may need more information from you about your return. If we do, we will send you a letter.”

Delayed refunds could cause financial stress for tax filers

A delayed refund could be a source of financial stress if you’re counting on the money to help you pay bills or accomplish other financial goals. 

As MLIve, which reported on the delay, makes clear, your entire refund is withheld until the March date, not just the portion impacted by the credit. This means you’ll wait far longer than many taxpayers to get any of your cash back that the IRS may have held all year. 

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Since EITC provides as much as $649 for those with no children or as much as $8,046 in credits for tax filers with three or more children, this is a lot of money to wait for.

And your refund amount could be even bigger when you also factor in that the maximum Child Tax Credit is $2,200 per qualifying child under 17, with as much as $1,700 of this amount refundable as the Additional Child Tax Credit.

If you are counting on this type of tax refund, be aware that you’ll potentially have to wait longer to get it.

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