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IRS Code 766 on IRS Transcript – What You Need To Know

IRS Code 766 on IRS Transcript 2022-2023

IRS Code 766IRS Code 766 indicates a refundable credit to your account from an overpayment made in a prior year or a credit from the latest year’s return. When IRS Code 766 appears on your tax transcript it means The IRS has credited your account.  It could be from an overpayment in a prior year or a credit claimed on the current year’s return. Nevertheless, IRS Code 766 confirms that your tax liability has been decreased and could possibly result in a refund. IRS Code 846 will indicate that the refund has actually been issued to you and is on its way. You can expect to see an update with that code if the credit results in refund payment.

If you did not claim any credits and you were not expecting a refund, you will probably receive a notice.  The IRS will send you a letter explaining any changes made to your account. They are required to notify you of any changes to your return after it has been submitted.

What is IRS Code 766?

An IRS Code 766 on your account means that you have received a credit on your account from the IRS. A credit on your account is a dollar-for-dollar reduction in your tax liability. If your credits exceed your tax liability, you may receive the difference as a refund. If your credits do not cover your outstanding balance, you will be required to pay the tax still owed.  However, it will be reduced dollar-for-dollar by the amount of the credit

How do tax credits work?

A tax credit is a dollar-for-dollar decrease in the amount of income tax owed. If you owe $500 in federal taxes but qualify for a $500 tax credit, your net tax burden is zero. Some credits, such as the earned income credit, are refundable.  This means you get the whole amount even if the credit exceeds your total tax payment. For example, if your total tax is $500 and you claim a $600 earned income credit, you’ll get a $100 refund.

IRS Code 766 on IRS Transcript – According to IRS Section 8 Master File Codes

Generated Refundable Credit Allowance.  ECC generated to allow a refundable credit (other than ES or excess FICA) which was verified on a Form 720, (abstract 11 amount) 941, 942, 943, 945 (Advanced Earned Income Credit) 990C, 990PF, 990T, 1040, 1040C, 1041, 1120 or 1120S return but not previously posted to the Tax Module, or from the appropriate line item adjustment of an Examination or DP Tax Adjustment. Includes credit allowed for gasoline tax paid, credit from Regulated Investment Co., or Covenant Bonds with item reference 334 (199312-199411 only) or installments of 1993 additional taxes. See Section 8C.3.   (Source: irs.gov)

On IRS tax transcripts, transaction numbers are used internally as well as to notify individual and business taxpayers.  The transaction codes identify what is currently happening with their tax return processing.  For example, reasons for potential delays, when a refund will be paid, or why it was less than expected. There are dozens of IRS transaction and cycle codes.  However, code 766 – Generated Refundable Credit Allowance, is one you WANT to see on your account or tax transcript.  This code is issued under the Explanation of Transactions section once your return has been processed by the IRS.

Code 766 indicates that you have a credit on your account.  This could be a refund, an overpayment from a prior year, or a credit from the current year’s return. Whatever the reason, it indicates that your tax liability has been lowered. If you are following your refund status closely, you may see several other transaction codes before code 766 appears. For example, you may encounter TC 150 (acknowledgment)TC 152 (delay)TC 768 (Earned Income Credit claimed), and TC 971 (Notice sent). These IRS transaction codes show extra adjustments made by the IRS before issuing your refund.

IRS Code 766 – Possible Refund Credits

There are several reasons you may have an IRS code 766 on your transcript. Some of the most common reasons are listed below.  Keep in mind that credits change each year so this list may change too.

Refundable Credit for Overpayment

The IRS issues an overpayment credit when your tax payments exceed what you owe. Generally, you’ll automatically receive a refund of the credit. However, you can ask the IRS to claim the credit as an advance payment toward next year’s taxes.  This is as opposed to sending it to you as a refund instead.  You might consider this if you expect your income to rise in the year following the filing of your return.  In that case, you may apply the overpayment to the next tax year. These overpayments will appear on your transcript as a credit with the IRS Code 766.

Child Tax Credit

The Child Tax Credit provides a tax reduction to households with eligible children. Even if you don’t regularly submit a tax return, you may be able to claim the credit.  Prior to 2021, the child tax credit was only partially refundable. However, in 2021, the credit amount was raised. The Child Tax Credit was boosted from $2,000 to $3,600 for qualifying children under the age of 6.  Also, from $2,000 to $3,000 for other qualifying children under the age of 18. Moreover, the credit has been made completely refundable. By making the Child Tax Credit fully refundable, low-income households will be able to get the full credit benefit. (Source: home.treasury.gov)

Earned Income Tax Credit

IRS Code 768 on your IRS Transcript indicates that an Earned Income Credit has been claimed and posted to your account in the IRS Master File. The Earned Income Tax Credit (EITC) provides a tax benefit to low- to moderate-income workers and families. If you qualify, you can use the credit to lower your tax liability and perhaps enhance your refund. If your income is low to moderate, you may be eligible for the EITC. The credit amount may change depending if you have children, dependents, are disabled or fulfill other conditions. Be aware, that your return may be delayed if you claim this credit. The IRS is required by law to hold refunds for taxpayers who claim the Earned Income Tax Credit until mid-February.

What Does the Date Next to IRS Code 766 Mean?

The date next to Code 766 on an IRS Transcript is the date the credit is applied to your account. For overpayments, this will be the date that the prior year’s return was due. Other credits will be put on your account as the return is processed.  IRS Code 846 will indicate that the refund has actually been issued to you and is on its way. You can expect to see an update with that code if your credit results in refund payment.

Frequently Asked Questions

Does IRS Code 766 mean a refund?

IRS Code 766 on your transcript simply indicates a credit to your account. It may amount to a refund if the credit amount is greater than any tax currently owed.  However, it can also be a credit toward taxes in a previous year.

When Will My Refund Credit Arrive?

You can always use the IRS’s Where My Refund tool to determine the exact timing of your refund. After the IRS processes your return, you should get a direct deposit refund within 2-3 weeks. Paper checks mailed to domestic addresses should be refunded within 3-4 weeks. If you haven’t received your refund check within 6 weeks, contact the IRS for clarification, or to request a replacement. You can reach the IRS by dialing 1-800-829-1040. During some periods of the year, wait times can be hours long, so be prepared to wait. You should be prepared to prove your identification and explain the problem. Before making an adjustment to your account, the IRS will frequently want a written explanation of the problem.

How can I speed up my refund if I claim the Earned Income Tax Credit?

If you claimed the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC), you can expect to get your refund as early as March 1 if:

Up Next: Is Workers’ Comp Taxable?

Is Workers' Comp TaxableIs workers’ comp taxable? Generally no, but a portion might be taxed if you also receive Social Security Disability Insurance (SSDI) benefits. Individuals who experience a work-related accident or sickness are entitled to workers’ compensation benefits. If you are qualified for temporary or permanent disability benefits via workers’ compensation, those benefits are normally tax-free.  This tax-free status is usually at both the state and federal levels. However, it can get a bit complicated if you also receive Social Security Disability Insurance (SSDI) benefits.  Particularly, when part of those benefits has been offset by your workers’ comp payments.  In that instance, a portion of your workers’ comp benefits may be taxed.

Moreover, retirement plan benefits are potentially taxable.  For example, if you retire because of a work-related illness or injury.  Or, your worker’s compensation payments diminish your Social Security or railroad retirement benefits. Also, you might need to include workers’ compensation as income if you received the payments for an injury and you previously deducted related medical expenses.

 

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