During the past few years, many a taxpayer has complained about how long the wait was to receive a refund from Pennsylvania when filing Form PA-40. The taxpayers who are due refunds are usually those who make quarterly estimated tax payments and paid too much during the year. The vast majority of PA taxpayers who only have PA personal taxes withheld from their paychecks likely will not be an overpayment position unless they have unreimbursed employee expenses.
PA’s response to the delay in issuing refunds has been to implement refund fraud prevention efforts. What impact will this new procedure have on refunds? Likely, taxpayers will have to wait even longer for their refund unless they work closely with their tax professional during the tax preparation phase and follow the tax planning strategy discussed below.
Beginning with the 2014 income tax filing season, the PA Department of Revenue (DOR) will institute new security measures to identify and intercept fraudulent refund filings. As part of this initiative to ensure refunds are issued only to their rightful owners, taxpayers may be asked to confirm their identities before refunds are issued.
In such cases, the taxpayer will be contacted by the department by way of a letter sent to the address on the taxpayer’s personal income tax return. The letter from the department will instruct the taxpayer to call a designated number (Good luck in having this call promptly answered), where the taxpayer will speak to a representative of a company the department has partnered with for its expertise in identity verification. The taxpayer will be asked to provide answers to questions to verify identity.
Taxpayers who receive this identity validation notice will authorize release of their refunds sooner if they follow the instructions for verifying identity provided in the notice.
Legislation passed in 2012 authorizes the PA DOR to enter into benefits-based procurements. The DOR is leveraging this authority by partnering in this identity validation effort with Revenue Solutions, Inc. (RSI), a company with experience in fraud identification and access to advanced analytical, technological and data tools beyond the department’s resources. Sounds like your tax information will be shared with a third-party. RSI’s compensation is directly tied to its performance in preventing fraudulent refund payments that otherwise would have gone undetected. This initiative is anticipated to save taxpayer dollars in the form of denied refunds and reduce identity misrepresentation on income tax returns in the future.
As we read this new procedure, it is almost inevitable that PA refunds will be delayed as it is in RSI’s financial interest to challenge the issuance of a refund. What can you do to expedite having your refund issued to you? Likely not much, except out-strategize the PA DOR and RSI. How do you do this? First, work with your tax professional to better estimate the PA taxes due to prevent excessive refunds being owed to you. Second, rather than request that a refund be issued to you, request that the overpayment be applied to the following year’s taxes and then you can reduce your following year’s estimated tax payments. Since the first installment payment is due April 15, by requesting that the refund be applied to the first estimated tax payment, you are “receiving” your refund on April 15.
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