House Democrats introduce bill to speed tax refunds for EITC recipients

Accounting

Two leaders of Congress’s main tax-writing committee introduced legislation Friday to undo tax refund delays for recipients of the Earned Income Tax Credit who file their taxes early.

The bill, introduced by House Ways and Means Committee chairman Richard Neal, D-Massachusetts, and Ways and Means Oversight Subcommittee chairman Bill Pascrell, D-New Jersey, would eliminate much of the delay that the Internal Revenue Service uses to do fraud checks on returns. The delay also often affects Child Tax Credits claimed by EITC recipients.

Under a law enacted in 2015, the IRS is required to withhold refunds for filers who claim certain refundable tax credits early in the tax filing season until Feb. 15. This delay gives the IRS extra time to match information from individual tax returns with information on the W-2 forms from employers, which have to be sent to the IRS by Jan. 31. The IRS uses the extra time to check for signs of identity theft and tax fraud. The proposed bill would enable the IRS to issue refunds of the EITC and the CTC before Feb. 15 if the amount on the tax return has been matched and verified with Forms W-2, so some authentication could still be done.

Representative Richard Neal, a Democrat from Massachusetts and chairman of the House Ways and Means Committee, ahead of a markup of the Build Back Better Act in Washington, D.C.

Stefani Reynolds/Bloomberg

“Americans who file their taxes early should not be penalized for their scrupulousness,” said Pascrell and Neal in a joint statement Friday. “Millions of recipients of both the Earned Income and Child Tax Credits are entitled to promptly receive the refunds they have earned, but because of a statutory requirement many of their payments are delayed if they file early. While well intentioned, these delays hurt too many regular Americans, so we are offering this simple change to remove the refund blockade and allow the IRS to issue fast refunds to all early filers.”

The prospects for passing the bill are unlikely with the opening of tax season soon approaching on Monday, Jan. 24, only a few weeks before Feb. 15. The Biden administration and congressional Democrats have been stymied for months with passing the Build Back Better Act, which would extend the enhanced Child Tax Credits provided last year under the American Rescue Plan Act that ended last month.

Republicans and moderate Senate Democrats like Sen. Joe Manchin, D-West Virginia, and Kyrsten Sinema, D-Arizona, have been blocking the bill, which also contains a number of other tax credits for renewable energy and a minimum corporate tax in line with the 15% rate backed last year by the Organization for Economic Development and the G-20 leaders. On Wednesday, Rep. Kevin Hern, R-Oklahoma, and other Republicans on the House Ways and Means Committee, sent a letter to Treasury Secretary Janet Yellen, asking her to avoid negotiating over digital taxes and the minimum tax rate without Congress’s input.

“We are concerned by the Administration’s unilateral effort to commit the United States to global tax policies that could diminish the United States’ competitiveness on a global scale and have grave consequences for our domestic economy,” the GOP members wrote. “Furthermore, we believe that the Constitution does not permit the Administration to bind the United States internationally to such policies without express Congressional consent. Because the Organization for Economic Cooperation and Development (OECD) Two-Pillar Solution to Address Tax Challenges Arising from the Digitalization of the Economy implicates core Congressional revenue-raising powers, implementing legislation is required for either pillar to have domestic legal effect. Therefore, we urge the Administration to work with Congress to examine the recent changes to international tax policy that it has embraced in this context, before making additional undertakings to foreign countries that lack the Congressional support necessary to be implemented at home.”

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