What is the maximum time the IRS is allowed to hold a refund?

There are many reasons your tax refund could be delayed. Perhaps your numbers and your employers numbers didnt match. Or you accidentally skipped a lineor an entire form. Or maybe

What is the maximum time the IRS is allowed to hold a refund?

There are many reasons your tax refund could be delayed. Perhaps your numbers and your employers numbers didnt match. Or you accidentally skipped a lineor an entire form. Or maybe you claimed a credit that the IRS takes longer to check. This year, however, the mostly likely reason your tax refund is delayed is that you filed a paper return.There was an additional backlog of tax returns created by the COVID-19 pandemic. While IRS workers have been back at work for a while, there is always a chance this is still impacting your return. Of course, the reasons for a delayed tax refund before the coronavirus crisis may still apply.Read on for more reasons and how to prevent future delays.

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How Long It Takes the IRS to Process a Tax Refund

Typically, the IRS issues a refund within 21 days of accepting a tax return. If you file electronically, the IRS can take up to three days to accept your return. If you mail in your return, it can take three additional weeks (the IRS has to manually enter your return into the system first). You should count another week into your time estimate if you request your refund as a check rather than a direct deposit. Check our2022 tax refund schedulefor more information or use the IRS2Go app to learn your status.

For 2020 tax returns (filed in 2021), the IRS said it planned to issue more than 90% of refunds within 21 days of e-filing. Some refunds could take as little as 14 days.This, of course, was before the coronavirus pandemic hit and health directives closed offices, including at the IRS. The IRS hasnt yet mentioned how long 2021 returns might take (filed in 2022).

The agency said that the average tax return in 2020 was $2,500. And initially expected the majority of tax returns (it estimated more than 150 million) to be filed by the 2021 deadline. But the National Taxpayer Advocatesays that the IRS finished the extended tax season with a backlog of over 35 million individual and business income tax returns that require manual processing, which means that IRS employees have to do an additional review before a refund can be processed. This backlog includes roughly 15.8 million returns pending a manual review, 16.8 million paper returns and 2.7 million amended returns.

For reference, tax season in 2021 began on February 12. So the earliest date taxpayers got a refund this past year was February 26 for direct deposits and March 5 for paper checks.

How Can I Track My IRS Refund?

If you are still expecting a tax refund, you can check the status of your 2021 income tax refund by using the IRS Wheres My Refund tool. Taxpayers will need to input personal information, including their Social Security number or Individual Taxpayer Identification Number, as well as the filing status and the expected refund amount.

Taxpayers can also check their refund status on the agencys mobile app IRS2Go. The app will also allow you to make tax payments and get free tax help (as long as you qualify).

Those getting tax refunds via direct deposit could get an IRS TREAS 310 notification on their accounts, which identifies tax refunds processed through electronic payments. Note that IRS TREAS 449, indicates that your refund has been reduced to repay tax debt.

And for taxpayers expecting a refund for 2021 unemployment compensation (up to $10,200 of this compensation was excluded from taxes for qualifying single taxpayers, and $20,400 for couples) the IRS said its correcting tax returns through the summer. Taxpayers may need to file an amended return if they failed to submit required forms or schedules.

Reasons for a Tax Refund Delay

Theres no singular reason for a tax refund delay through the IRS. Instead, a multitude of different scenarios can affect how long it takes for you to get your refund back from Uncle Sam. For example, you may have made a mistake on your return, entered the wrong bank account information for the refund, filed early or a number of other situations. Below, we break down several common reasons why your tax refund could be delayed.

You Claim Certain Credits

If you file on the early side and claim the earned income tax credit (EITC) or the additional child tax credit (ACTC), you will have to wait a bit for a refund. According to the law, the IRS has to wait until Feb. 15 to issue a refund to taxpayers who claimed either of those credits. Presidents Day and bank processing times can slow down your refund further.

If the hold is because you filed before mid-February, there is no need to worry. The hold is not a result of mistakes or problems with your return. But if you filed later than that, the hold could also be because the IRS has questions or needs more information, in which case, you should receive a letter explaining what it requires.

If you claimed those credits, have been waiting weeks for a refund and have not received a letter from the IRS, you can check the status of your refund on the IRS website through its Wheres My Refund? tool.

Filing Early or Late

Early filers may have to wait for refunds. One reason for this is because the IRS may still be making changes to their processes. That could include updated security measures or process tweaks due to changes in the tax code. And if the IRS needs to update or make changes, it probably wont make them until just before tax time.

Your refund could also face a delay if you file early in the tax season because this is a high traffic time for the IRS. The same is true at the end of tax season. The majority of taxpayers file either as soon as they can or wait until close to the tax day deadline. Going through a high volume of returns will take time.

New Security Measures

Identity theft is a big threat in todays world. To combat the threat, the IRS maintains strict security standards. Some security measures will cause the IRS to increase processing time for returns (and refunds).

If the IRS suspects that someone has attempted to steal your identity (by filing a fake return), this could hold up your return. You would then have to wait until the IRS completes any investigating and until it can ensure that you are who you say you are.

The IRS may also convert your refund from a direct deposit to a paper check. This will delay your refund but it is simply a security measure. It protects the IRS from sending money to a bank account it does not believe is yours.

Many state governments have also said that they will take longer to process tax returns because of new security measures. A state government may also work on a different timeline than the IRS. For example, Alabama historically has not started issuing refunds until March 1. The IRS starts issuing refunds in February.

If you are trying to track your state refund, read this article on where your state refund is.

You Filed a Paper Return

As mentioned earlier, the IRS normally takes longer to process paper returns than electronically filed returns. That means you will wait longer for a refundand even longer if you want your refund as a check. The IRS also takes longer to process a return and issue a refund if you file a paper return via certified mail.

Speaking of paper returns, you will need to file all amended returns (1040X) as a paper return. The IRS estimates the processing time for amended returns as somewhere between eight and 12 weeks.

Even if you file electronically, you will have to wait longer if you elect to receive your refund as a paper check. Sending a check through the mail also creates the possibility of the check getting lost or sent to the wrong address. That would delay your refund similarly to the way sending a refund to the wrong bank account would.

Mistakes on Your Return

If you file an incomplete return or if you have any mistakes on your tax return, the IRS will spend longer processing your return. This will slow down any potential refund. Mistakes could include mathematical errors or incorrect personal information.

Using a tax filing service, such asTurboTax, will likely eliminate mathematical errors from your return. The software will do the math for you. However, its still possible to make a mistake if you are inputting any information manually For example, lets say you manually input the information from your W-2. If you earned $50,000 over the year but you accidentally input $51,000, you may run into problems.

The IRS will contact you if there are any issues with your return. In some cases, the IRS will correct small mathematical errors. That could save you the work of having to file an amended return.

Incorrect personal information will also slow down your return. As an example, lets say you file a joint return and incorrectly input your spouses Social Security number (SSN). The rest of the information on your return could be correct, but the IRS may not be able to confirm that because it cant match your spouses SSN.

Incorrect Bank Info

Most taxpayers now receive refunds via direct deposit into a bank account. When you provide your account number and bank routing number, its important to double check that the information is accurate. No one wants to miss out on a refund because it went to the wrong bank account.

If you entered the wrong account information, there are a few things you can do. In the case that the IRS hasnt sent your refund yet, you can ask them to stop the direct deposit. Call the IRS toll-free at (800) 829-1040, any weekday between 7 a.m. and 7 p.m.

In the case that the IRS already sent the payment, you will need to contact the financial institution. If the institution can get the funds, it will return the refund to the IRS. The IRS will then issue your refund as a paper check. If the institution says it cannot get the funds back, you should file Form 3911, Taxpayer Statement Regarding Refund, with the IRS.

Form 3911 will allow the IRS to contact the financial institution on your behalf and attempt recovery of your refund. When you file the form, the IRS will initiate whats called a trace. Banks have 90 days from the date of the initial trace to respond to the IRS request for information. However, a bank is not required to provide information to the IRS. If the bank doesnt respond, your final option is to take civil action against the financial institution and/or the owner of the account into which your refund was deposited.

You Have Outstanding Debt

For certain types of debts, the IRS has the authority to garnish your tax refund. (Wage garnishment is the act of withholding money from you in order to put it toward something else.)

Common reasons that the IRS will garnish your refund include

  • You owe money for back taxes
  • You defaulted on a federal student loan
  • You owe money for child support
  • You filed a joint return and your spouse has outstanding debt

In the event that the IRS garnishes your refund, you will receive a notice explaining why it did so. If you dont think you owed that debt, you will need to dispute it with the agency to whom the money was paid.

Bottom Line

There are a number of reasons why you could experience a tax refund delay. Some reasons wont require any additional work on your part. This is the case if you claimed certain credits or if you file at certain times. Filing a paper return or receiving your refund as a paper check will also slow things down.

Other reasons for delay may be you made a mistake or omitted information. In this case, the IRS will send you a letter. If you requested a direct deposit and provided incorrect bank information, however, you will have to track the money down. In any case, the easiest way to check on your refund is through the IRS2Go app or website tool.

Tips for Making the Most of Your Refund

  • Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you do not have any pressing debts to pay off, you may want to put your refund right into the bank. In that case, look for a high-interest savings account. Getting the highest interest rate possible will make your money work for you.
  • Another way to use your refund is by putting it toward retirement. That may not sound very fun but its important to ensure you can live your golden years doing whatever you want to do.

Photo credit: © iStock/LPETTET, © iStock/anyaberkut, © iStock/AntonioGuillem

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