Your tax refund could be delayed this year, IRS says
NEW YORK (CNNMoney) — As much as people may hate paying taxes, they do love their refunds.
Normally, the IRS cuts its refunds checks pretty quickly. But this year, because of budget cuts, IRS Commissioner John Koskinen has warned that there could be a delay in issuing them.
People who file paper tax returns could wait an extra week for their refund — “or possibly longer,” wrote IRS Commissioner John Koskinen in a memo to employees Tuesday. And filers with errors or questions that require additional review will also face delays.
Last month, Congress approved a $10.9 billion budget for the IRS for fiscal year 2015, which ends in June. That’s the lowest level of funding since 2008, Koskinen said.
Koskinen said the budget cuts would result in several other changes at the agency, including:
Fewer audits. Due to cuts in enforcement staff, collection efforts for individuals and businesses will be reduced.
Hiring freeze. The freeze, plus normal attrition rates, will result in 3,000 to 4,000 fewer full-time employees at the agency by the end of June. Including the headcount losses incurred since 2010, that means the agency’s full-time staff will be reduced by as many as 17,000 employees over the course of five years.
Less taxpayer help. Cuts in overtime and temporary staff hours will not only delay refunds, but hurt correspondence with taxpayers as well. Koskinen said it’s likely that fewer than half the taxpayers that call the agency will be able to get through.
A possible two-day shutdown after tax season. To minimize disruptions, Koskinen said a temporary shutdown, if needed, would likely occur closer to June. But, he added, the agency will do what it can to avoid this option, which he called a “last resort.”
Delays in IT investments. Among the delays, will be technologies that offer new taxpayer protections against identity theft.
Nearly 8 out of 10 taxpayers get refunds
Every year, nearly eight out of 10 U.S. tax filers get a federal tax refund. The average amount paid over the past few years was roughly $2,800, according to the most recent IRS data.
Who gets these refunds varies by income group. While 84% of those making less than $50,000 received a refund in 2012, only 34% of those making more than $200,000 did, according to an H&R Block analysis of IRS data. But their average refund – at $12,611 – is more than six times the average $2,086 that those in the lowest income bracket received.
Of course, any financial planner will tell you that a refund is nothing more than an interest-free loan to the government, and that tax filers would be better off if they’d had the money during the year to invest or pay off debt.
But fear tends to be a bigger motivator.
“Many people want to make sure they don’t owe the IRS money,” said Katherine Pickering, executive director of H&R Block’s Tax Institute. So they err on the side of having too much withheld from their paychecks.
The other big reason so many people receive refunds: tax breaks.
For low-income filers, a big part of their refund is due to the Earned Income Tax Credit, which they can claim as long as they hold a job. The EITC is an antipoverty program designed to encourage and reward work, and it primarily benefits workers who have children.
For those higher up the income scale, the actions they take during the year can make them eligible for more tax breaks and set them up for a refund – whether they buy a house, move to a high-tax state or city, bump up their charitable contributions or make their home more energy efficient.
So, what do taxpayers do with all of that refund money? Last year, the two most common things people did were pay bills and make big-ticket purchases – such as buying a car or paying for a vacation, Pickering said. A small percentage used their refunds to help pay down a mortgage or other home loan.
Conspicuously absent from most refund recipients’ list, however: Using the money to bolster their savings, she said.