If you’re waiting on your refund and see IRS Transaction Code 766 pop up on your tax transcript, what does that mean? In today’s post, I’ll share everything you need to know about IRS Code 766.
What does IRS Transaction Code 766 mean?
When you see IRS Transaction Code (TC) 766 on your tax transcript, this means that a tax credit has been transferred to your tax account. The credit might be the result of a refund, payment, or other tax credit from the current or previous year(s). No matter the situation, if you see Code 766 on your tax transcript, you can give yourself a high five and expect to have a lower tax bill – which might mean a bigger refund!
Why did I receive a credit on my tax transcript?
Common tax credits that result in an IRS Code 766 on your tax transcript include:
- Child Tax Credit
- Child and Dependent Care Credit
- Adoption Credit
- Earned Income Tax Credit
- American Opportunity Tax Credit
- Lifetime Learning Credit
- Saver’s Credit
- Solar Tax Credit
- Electric Vehicle Tax Credit
Additionally, if in a previous tax year you decided to have your overpayment applied to the following tax year, this credit will also be listed with a Code 766. Taxpayers sometimes choose to do this when they know they’ll be bringing in more income in the following tax year, and they want their overpayment in a previous tax year to offset their future tax liability.
What’s the difference between a tax credit and a tax deduction?
This is a very common question from my clients. To put it simply, a tax deduction reduces your taxable income. If you have a tax deduction, that amount is subtracted from the income you earned.
On the other hand, a tax credit is an amount that can be subtracted from your tax bill. So if you have a tax deduction of $5,000, that doesn’t mean you’ll owe $5,000 less on your tax bill, but if you have a tax credit worth $5,000, that means you will owe $5,000 less on your tax bill.
What should I do if I have Transaction Code 766 on my tax transcript?
Generally, if you see TC 766 on your tax transcript, the IRS will send you a letter notifying you of the reason for the code. There is no action required on your part. If you have questions about Code 766 or about your tax return, you can contact an accountant or call the IRS for help.
When will my taxes be finished processing? When will I receive my refund?
Regardless of whether or not Code 766 is listed on your tax transcript, most refunds will be distributed in less than 21 calendar days. If the credit associated with your Code 766 wasn’t entered or used during calculations when you submitted your tax return, this could mean that your tax liability amount will change.
If you were already expecting a tax refund based on the tax return you submitted, a Code 766 you weren’t expecting could mean that you’ll receive a bigger tax refund than you were expecting. To make sure you don’t miss out on any tax credits, deductions, or refund money in the future, consider hiring a certified public accountant (CPA) to help complete your tax return.
If you have other tax transcript or IRS code-related questions, read some of my other posts on these topics:
- Your Tax Return Is Still Being Processed
- Check Tax Refund Status
- What Is an IRS Cycle Code?
- What Is Code 570 and 971 on My IRS Tax Transcript?
- Tax Topic 152: Is My Refund Delayed?
- What Is IRS Code 150 on My Tax Transcript?
- What Day and Time Does the IRS Deposit Refunds?
- How Do I Get a Tax Transcript from the IRS?
- What Is IRS Code 150 on My Tax Transcript?
