Until the moment you finalize your tax return, the big question for most people is whether you owe money to the IRS or whether the IRS owes you a refund.
If the IRS owes you money, you may feel happy initially. After all, who’s going to turn down extra dollars coming into your bank account?
But the time it takes to get your refund — and the process you may have to go through to verify your identity — can sour you on the experience. After all, you’re giving the government an interest-free loan. Plus, depending on the steps you have to take, you may feel uncomfortable with the data you have to give to the IRS.
Does the government overstep its boundaries when processing your IRS tax refund? That’s what a listener of the Clark Howard Podcast recently asked.
Should I Be Upset About the Way the Government Handled My IRS Tax Refund?
IRS tax refunds aren’t as good as they may sound on paper. For one, you may have to wait a frustratingly long time for the IRS to process your refund and pay you. Also, some people have to take additional steps to verify their identity in order to receive their refund.
Should you be upset about the way the government handles your IRS tax refund?
That’s what a listener wondered on the April 17 podcast episode.
Asked Jeff in Texas: “I recently received a troubling letter from the IRS. It stated that in order to receive my tax refund, they had to verify my identity at ID.me. A picture of my driver’s license, front and back, and a selfie would be required. I complied. The IRS owes me $5,500.
“It turned out that the ‘selfie’ was really a biometric facial scan. I’m really worried that ID.me or the IRS could use my facial scan in nefarious ways. Also, ID.me or the IRS could be hacked and my identity stolen.
“The letter stated that an additional nine weeks is required before I receive my refund. I’m sorry, but this is a bridge too far. Do you think the IRS has overstepped its authority? I do. Are there other way to identify someone other than a biometric scan? I quickly adjusted my W-4, I will never receive a refund again!”
Why Does ID.Me Exist? And What Does Clark Think About It?
The IRS rolled out ID.me in 2022 to combat tax fraud. But its use of facial recognition software was controversial from the start.
You do not need to verify your identity with ID.me in order to file your tax return. But the IRS does require ID.me in order to access your account online. This year, there’s still uncertainty and confusion surrounding the program.
“ID.me began because of the enormous problem of tax identity fraud,” Clark says. “That crime has declined significantly because of ID.me. People were waiting more than a year in many cases to clear it up and get their actual refund back. So we’re trading one issue for another.
“ID.me is so that the IRS knows as well as they can that you are who you say you are and they’re not sending your money to a crook. For whatever reason, there was an anomaly involving you that made them worry. Their analytical tools worried that maybe you weren’t you.
“And so that’s why you have this extreme invasion of privacy that you’re facing with the scans and the information that you had to supply.”
The evolution of technology is almost always a double-edged sword. It takes time to create societal norms, tackle unforeseen problems and get past fears and unfamiliarity.
Tax fraud is a horrible thing that exists in the modern era. It seems like we’re getting closer to shrinking the issue. But it’s still very much imperfect. And it often takes the federal government (and society) many years to smoothly adapt to new technologies.
For now, though, ID.me is a key cog in dealing with the IRS online.
Why You Shouldn’t Celebrate Getting an IRS Tax Refund
One thing you can do to make sure that you don’t spend time waiting for the IRS to give you back your own money? Make sure that next year, you tell your employer not to withhold as much money in taxes.
“Getting a big refund is a detriment, not a benefit, from the IRS. It means you made an interest-free loan to the government. And as you discovered in your case, you’re being held hostage to get your own refund, your own money, that you overpaid through withholding over the prior year,” Clark says.
Even if you’re a patient person, the math makes the issue more clear.
Let’s oversimplify this for illustration purposes. Say that instead of waiting until May 2023 to get your $5,000 tax refund, you were able to put that entire amount into one of the best high-yield savings accounts in May 2022. And let’s say that you averaged 3.5% APY for that year.
You would have earned $175 in interest during that time. Also, in a year with ongoing recession concerns, higher credit card balances than ever and continued high inflation, the IRS has held your $5,000 for many months instead of it staying in your bank account.
Final Thoughts
Do your best to make sure your tax withholdings don’t lead to a large IRS tax refund — or any at all, if you can help it.
The IRS has gotten better at counteracting tax fraud and processing tax refunds. But it still usually leads to you providing an interest-free loan to the government for an unpredictable number of months.
Plus, there’s always the chance that you’ll need to verify your identity via ID.me in order for the IRS to process your refund. There’s ongoing debate about just how safe that is, especially in case of a data breach. Those seem all too common these days.
