By Chip Wiley
Although the Tax Refund Selling Season started in October, the time to plan your Tax Refund Money Season is here. Each new year brings changes to the landscape, some more drastic than others. If your dealership is not prepared, disappointment could be the ultimate result.
2017 will not be any different. In fact, the changes this year will make preparedness essential to your success.
It’s called the PATH Act (Protecting Americans from Tax Hikes), a piece of legislation passed back in December of 2015. Buried deep within this law is a tax fraud safety measure that will affect nearly every special finance customer.
First, the official statement from IRS.gov, then what it means for you:
This change begins Jan. 1, 2017, and may affect some returns filed early in 2017. Additional information is listed below.
- To comply with the law, the IRS will hold the refunds on EITC and ACTC-related returns until Feb. 15.
- This allows additional time to help prevent revenue lost due to identity theft and refund fraud related to fabricated wages and withholdings.
- The IRS will hold the entire refund. Under the new law, the IRS cannot release the part of the refund that is not associated with the EITC and ACTC.
- Taxpayers should file as they normally do, and tax return preparers should also submit returns as they normally do.
- The IRS will begin accepting and processing tax returns once the filing season begins, as we do every year. That will not change.
- The IRS still expects to issue most refunds in less than 21 days, though IRS will hold refunds for EITC and ACTC-related tax returns filed early in 2017 until Feb. 15 and then begin issuing them.
Bill Neylan, President and CEO of Tax Max explains, “Early tax filers with children on their tax return can file starting January 2nd, just like normal.” He continues, “The only difference is that nearly all early filers within the Special Finance demographic will have to wait until AT LEAST February 15th to get their full refund, in an attempt to reduce tax refund fraud.”
We had a taste of this last year. In 2016, refunds were delayed 1 week by a blizzard from Washington DC to New York, halting operations in multiple IRS processing centers. An additional 3-5 day delay came from an IRS system crash on February 3rd, 2016.
The result of the delays was the largest tax refund release, or “money dump” in the history of the IRS. So much money was released on February 10th, financial systems crashed and bank locations ran out of money from all of the refund checks being cashed.
Expect similar chaos in 2017, with the primary dates being between February 15-20th.
But the news is not all bad. Banks in the tax refund realm are currently embarking on their 2nd year of a program to help keep the money flowing prior to February 15.
Starting back in January of 2016, banks successfully tested the return of tax refund advances. The pilot program featured 24-hour checks of up to $750 to $1,000. For 2017, many banks are preparing to launch same-day refund advances of up to $1,200.
So what does this mean for dealerships and how can you prepare for this change?
- Do not rely on the information provided in tax company commercials. Much of what is advertised will not apply to your business model. When they advertise ‘free tax preparation’ on TV, your customer rarely qualifies.
- Do not rely on information your accountant gives to you. Time frames for businesses and people who make over $60,000 per year are different from the Special Finance consumer. For example, January 31st is your deadline to provide W-2 Forms to your employees, but many payroll contractors send these out the 1st or 2nd week of January.
- Understand that your customer can file as early as January 2nd and more than ½ of your customers will file BEFORE February 1st.
- Lean on experts within your industry. GIADA, NIADA, NABD, and other associations can steer you to the right people who specialize in selling cars and the tax refund customer.
- The refund advances of up to $1,200 begin when the IRS opens in mid January. Approval requires W-2 forms, bank approval, and IRS approval.
- Manage your finances accordingly. Realize that a majority of your customer’s refund money will not arrive until at least February 15th.
- Expect more than 50 to 70% if ALL tax refund dollars to hit the market within a 1-3 day period! You will not have the manpower to handle all of the traffic, so be ready. Encourage employees to avoid vacations from February 15th to February 28th.
Preparation and planning will be key for the 2017 tax refund season. Many dealers claim that tax refund season is ‘dying.’ But in fact, the average refund within the Special Finance market has more than DOUBLED in the last 10-12 years.
The cause of many failures is the shortening of the tax refund payout season. It used to be a month or 2 back in the 1990’s. It shortened to a matter of weeks in the past 15 years. Now the season could be condensed to a matter of days.
The “Sit & Pray” approach to Tax Refund Season no longer works. Sit and be prey is more accurate. There are too many sharks in the refund tank for the old method to be effective anymore. If you do not actively pursue the tax refund customer, more aggressive competitors from multiple industries will take them from you.
Chip Wiley is the Dealer Training & Marketing Specialist with TRS Tax Max. He has 15 years of experience, specializing in the Buy Here Pay Here demographic.