Tax Advice

Dealing With a U.S. Tax Refund Delay? Here Are the Reasons for the Hold-Up

It’s a fact: People despise waiting. The stationery supply company BIC once asked people how long they were willing to wait before becoming frustrated. Respondents reported losing their patience after just 16 seconds of waiting for a web page to load, 18 seconds of looking for a pen, and 25 seconds of waiting for a traffic light to change.

Unfortunately, the wait time for a tax refund wasn’t included in the BIC study. Like it or not, most people wait around three weeks for a tax refund, but errors, oversights, identity theft, or claiming certain refundable credits can lead to even longer delays. We wanted to uncover the main reasons for a delayed tax refund and what you can do to avoid screaming, “Where’s my refund?” next year.

Reason #1: Your Tax Submission is Missing Information or Has Errors

One of the most common reasons for delayed refunds is missing or incorrect information on your tax return. Before filing, it’s crucial to verify that all details are accurate. This includes checking your Social Security Number and ensuring that your name, along with your spouse’s and dependents’ names, matches the records on file with the Social Security Administration. Errors in these fields can cause the IRS to delay processing your return.

If you’re filing business returns using forms like Form 1065 or Form 1120-S, make sure the partner/shareholder names and Social Security numbers on the K-1 forms are correct, and that the company name matches the information the IRS has on file. Failing to do so could result in math errors or return errors that delay your refund.

In addition to these details, you must ensure you report all income, including W-2s, 1099s, and K-1s. If income is underreported or missing, it could trigger an error or even an incomplete tax return, causing further review and delayed refunds.

For faster processing, always opt for direct deposit. The IRS reports that more than 9 out of 10 refunds issued via direct deposit are completed in less than 21 days, significantly faster than waiting for a paper check to arrive. Make sure to verify your bank account information, including the correct bank account number and routing number. If you mistakenly input the wrong account number, your refund may be sent to someone else, and recovering the funds could take time.

If you’re filing an amended return or if there are any discrepancies in your tax code or tax return, the IRS may hold up your refund check for further review. Keep in mind that if you owe state income tax, child support, or any other debts, the IRS can reduce your refund or apply it to those obligations.

Lastly, the IRS e-file process helps catch most errors in real time, but if you choose to file a paper return, it may take much longer to process and issue your refund check. For the fastest resolution, file electronically and always ensure your return is complete and accurate.

Reason #2: You Filed a Paper Tax Return

If you want to avoid delayed refunds, always opt to e-file your tax return. The IRS strongly encourages taxpayers to file their tax returns electronically instead of submitting a paper return. The e-file process offers several benefits, including the reduction of math errors and incomplete tax returns, as the tax software helps prevent common mistakes like incorrect names, Social Security numbers, or missing information. These errors are often flagged during e-filing, whereas a paper return may sit in a backlog, causing significant delays.

Filing electronically ensures that your refund amount is processed quickly. IRS updates on filing times show that most refunds are issued within 21 days when filed electronically, compared to much longer wait times for paper returns.

If you have to file a paper return, make sure to include all required documentation, such as W-2s or 1099s. Failing to attach these documents will result in delays, as the IRS needs additional time to verify bank account information and other dependents’ information. Additionally, if you’re working with a tax preparer, they should file your return electronically to expedite the process.

Another reason to file electronically is that refunds deposited via direct deposit are faster. If you owe taxes or need to file an amended return, filing electronically ensures that the process is faster, reducing the chance of your refund check being delayed. Also, the IRS system catches errors in the e-file process more effectively, which minimizes mistakes that could otherwise delay the refund.

For taxpayers filing paper returns, the IRS often holds refunds longer due to refund fraud concerns or for further review. You may also be subject to refund fraud or other debts like child support, which could reduce the amount of your refund. Therefore, filing electronically is the best option to ensure timely receipt of your refund check.

For faster processing, always e-file your returns and choose direct deposit to get your refund deposited directly into your bank account​

Reason #3: Your Estimated Payments Applied to the Wrong Account

“Once, I worked with a client who set up a single-member LLC for her consulting business and obtained a Tax ID number for the business. All smart moves, except when she made her quarterly estimated payments, she used the Tax ID number for her business instead of her Social Security number. The IRS had over $100,000 of her estimated tax payments, but because the payments had been applied to the business’s Tax ID instead of her SSN, they were sending her notices telling her she owed more money”, says Janet Berry-Johnson, CPA.

“Fortunately, the issue was quickly resolved with a letter to the IRS explaining the situation, but it did cause some frustration and delay”, says Berry-Johnson.

If your business is an S-Corp, LLC, partnership, or sole proprietorship, income from the business “flows through” to your individual income tax return, Form 1040. When you make estimated payments, they should be applied toward your SSN, not the business’s Tax ID.

If payments were applied incorrectly, the IRS would send a notice indicating the number of estimated payments reported on your return does not match their records.

Reason #4: You May Be Claiming Certain Refundable Tax Credits

If you claim the Earned Income Tax Credit or the Additional Child Tax Credit on your tax return, your tax refund may take longer. The Protecting Americans from Tax Hikes (PATH) Act requires the IRS to hold refunds on any tax returns claiming these refunds until mid-February. This change was designed to give the IRS more time to help detect and prevent fraud on every tax return processed each year.

Both of these tax credits are refundable, meaning taxpayers can receive tax refunds above the amount of tax they paid into the system. While they are designed to help low-income taxpayers, the refundable nature of these tax credits makes them more prone to abuse and fraud. The PATH Act mandates that no refunds for overpayments will be issued before February 15 if you claim the Earned Income Tax Credit or the Additional Child Tax Credit.

Reason #5: You May Be Flagged for Identity Theft

Identity theft has become an increasingly prevalent issue in recent years, and the Internal Revenue Service (IRS) has ramped up efforts to combat tax refund fraud. However, these added security measures can sometimes lead to delays in processing legitimate tax returns and refunds. If your income tax return is flagged for potential identity theft, it could take significantly longer to resolve.

If you’ve been a victim of identity theft and attempted to e-file your tax return, you may receive an error message indicating that a return has already been filed under your Social Security Number. First, verify that the number was entered correctly. If the details are accurate, you’ll need to file a paper return and attach an Identity Theft Affidavit (Form 14039). Unfortunately, paper returns typically take longer to process, and the added complexity of verifying identity theft can delay your refund even further.

If you’ve been impacted by identity theft in the previous tax year, you will be issued an Identity Protection PIN (IP PIN). This six-digit number is required to e-file your tax return. If you file electronically without the correct IP PIN, your return will be delayed as the IRS verifies that the return was indeed submitted by you. Additionally, if you file a paper return and the IP PIN is missing or incorrect, the IRS will hold up your refund until they can confirm your identity.

The IRS advises taxpayers to be proactive in protecting their taxpayer information and to report any identity theft issues promptly to avoid delays in processing tax refunds

How to Avoid Delays

Filing your tax return accurately and efficiently is the best way to ensure a timely refund. Delays can be frustrating, but they’re often preventable with careful preparation and attention to detail. Taking proactive measures when filing can significantly reduce the chances of encountering common processing issues. Here are steps you can follow to avoid delays and expedite your refund​

• File Electronically: Use the e-file process to reduce errors and ensure faster processing. Returns filed electronically typically have fewer delays than paper returns
• Verify Direct Deposit Information: Double-check your bank account and routing numbers to avoid complications with refund deposits
• Accurately Complete Returns: Ensure all required forms, such as any corresponding schedule, are included. Verify the exact amounts of taxes withheld and any estimated taxes paid
• Track Refunds Online: Use the IRS’s “Where’s My Refund?” tool or the IRS2Go mobile app to monitor the status of your refund. Updates occur daily and can provide the latest details on processing
• Respond Promptly to IRS Requests: If contacted, reply immediately with any requested documents to prevent further delays

What to Do If Your Refund Is Delayed

If your refund is delayed beyond the expected timeline, check the status of your refund online. For complex delays, consider contacting the Taxpayer Advocate Service (TAS), which assists with unresolved IRS issues. For taxpayers dealing with issues like identity theft, follow the steps outlined in the IRS correspondence to resolve them efficiently.

Understanding the reasons behind refund delays and taking proactive steps can help ensure a smoother process during the tax season.

Can’t Afford to Wait for Your Tax Refund?

If you need quicker access to your funds, adjusting your withholding or reducing your fourth-quarter estimated tax payment for the current tax year might be a good option. By making an accurate estimate of your tax liability now, you can reduce the amount of taxes withheld from your paycheck or decrease your estimated taxes. This will leave more money in your bank account now, leading to a smaller tax refund later, which can be helpful if you’re looking to boost your cash flow immediately.

The IRS is required to issue tax refunds within 45 days of accepting your tax return. If they don’t meet this deadline, they owe you interest for each additional day. The IRS system begins the countdown from the filing date or April 15th, whichever comes later. If eligible, the IRS will automatically add the interest to your refund check, but be aware that the interest will be taxable income on your next year’s tax return.

While some delays may occur due to refundable tax credits, and issues like identity theft or refund fraud, the IRS has stated that most tax refunds are still issued within 21 days. To stay updated on your refund, you can use the IRS Where’s My Refund? tool or check the status using the IRS2Go mobile app.

This post was updated in December 2024.