Why Is the IRS Holding My Refund and What Can I Do About It?

Waiting for a tax refund can be frustrating, especially when the IRS unexpectedly delays it. While most refunds are processed within 21 days, various issues can cause hold-ups, leaving taxpayers wondering what went wrong.

Understanding why your refund is delayed and how to resolve the issue can help ease uncertainty.

Errors on the Return

Mistakes on a tax return slow processing since the IRS must review and correct discrepancies before issuing a refund. Even minor errors, such as incorrect Social Security numbers or misspelled names, can cause problems. More significant mistakes, like miscalculating taxable income or claiming deductions that don’t match IRS records, require additional scrutiny.

Choosing the wrong filing status—such as claiming Head of Household without meeting the requirements—can trigger a review. Listing a dependent already claimed by another taxpayer often results in delays, as the IRS cross-references returns to prevent duplicate claims.

Math errors are another common issue. While tax software reduces miscalculations, mistakes still happen, especially with manual entries. The IRS automatically corrects basic math errors, but if the mistake affects the refund amount, they may send a notice explaining the adjustment.

Verification of Income and Documents

The IRS may hold a refund if reported income doesn’t match what employers, banks, or other institutions submit through W-2s, 1099s, or other forms. This often happens when taxpayers forget to include freelance earnings or interest income.

Self-employed individuals and independent contractors are particularly affected by these verification delays. Without W-2s, the IRS relies on 1099 forms and other third-party reporting. If earnings are underreported or documentation is missing, the IRS may request additional proof, such as bank statements or invoices.

Foreign income can also trigger delays. U.S. citizens and residents earning money abroad must report worldwide income. If the IRS suspects incomplete reporting, they may request supporting documents. Certain forms, like the Foreign Earned Income Exclusion (Form 2555), require specific criteria to be met, and inconsistencies can lead to further review.

Outstanding Financial Obligations

The IRS can withhold refunds if a taxpayer has unpaid debts qualifying for the Treasury Offset Program (TOP). This allows agencies to intercept refunds for past-due obligations, including unpaid federal or state taxes, delinquent child support, defaulted student loans, and certain state debts. If a refund is reduced or withheld, the Bureau of the Fiscal Service (BFS) sends a notice explaining the reason and the agency that received the funds.

Unpaid child support is one of the most common reasons for refund offsets. The Office of Child Support Enforcement works with the IRS to collect overdue payments, potentially reducing or withholding refunds. Similarly, defaulting on federal student loans can lead to an offset, though repayment programs can help borrowers avoid this outcome.

State tax debts and unemployment overpayments also trigger refund holds. Many states use TOP to recover unpaid income taxes or improperly received unemployment benefits. If a taxpayer received excess unemployment compensation—whether due to an error or failure to report income changes—the state may request the IRS to apply their refund toward the balance.

Possible Identity or Fraud Concerns

The IRS monitors tax returns for signs of identity theft and fraud, which can delay refunds if a return is flagged for review. Criminals often file false tax returns using stolen Social Security numbers to claim refunds before legitimate taxpayers submit their filings. If the IRS detects suspicious activity, they may place a hold on the refund and request identity verification through Letter 5071C or a similar notice. Taxpayers receiving such a letter must verify their identity online, by phone, or in some cases, in person.

Returns that show unusual filing patterns or inconsistencies compared to prior years may also trigger fraud reviews. A sudden change in income, a new filing address in a different state, or a significantly higher refund could prompt additional scrutiny. E-filing with a new bank account may also raise red flags. To enhance security, the IRS offers the Identity Protection PIN (IP PIN) program for taxpayers who have been victims of identity theft.

Specific Tax Credits Under Examination

Certain tax credits face heightened scrutiny, leading to refund delays if a return is selected for review. Refundable credits, which allow taxpayers to receive a refund even if they owe no tax, are particularly examined due to the potential for fraud or improper claims.

The Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) are among the most frequently audited credits. Under the PATH Act, refunds that include these credits are held until mid-February for verification. Taxpayers may need to provide additional documentation, such as proof of income, residency, or relationship to dependents.

The American Opportunity Tax Credit (AOTC), which helps offset education expenses, is often flagged if tuition payments don’t match IRS records. If discrepancies arise, taxpayers may need to submit transcripts or receipts.

The Recovery Rebate Credit (RRC) and Premium Tax Credit (PTC) can also lead to refund holds. The RRC, which reconciles stimulus payments, may be delayed if the IRS needs to verify prior Economic Impact Payments. The PTC, designed to assist with health insurance costs under the Affordable Care Act, can be adjusted if income levels don’t align with reported marketplace subsidies. In both cases, taxpayers may need to provide additional forms or explanations before the IRS releases their refunds.

Internal Processing Delays

Even when a tax return is accurate and complete, internal IRS processing issues can still cause delays. The agency handles millions of returns each year, and factors such as staffing shortages, system backlogs, and technical errors can slow down refund issuance. Some delays stem from fraud detection filters, which may flag returns for manual review even when no actual issues exist.

Paper-filed returns typically take longer to process than electronic ones, especially during peak tax season. If a return requires manual intervention—such as additional verification or a random compliance check—processing can extend beyond the standard 21-day window. Amended returns or late filings also take longer, as amended returns can take up to 20 weeks to process.