January 12, 2019
Government Shutdown = Slow IRS Refunds
The IRS announced the filing season kicks off January 28, 2019. Millions of taxpayers expecting refunds file their returns as soon as possible. These households tend to need the money. The sooner the better.
However, there’s hardly anyone at IRS to do the work. The IRS is operating at dramatically reduced staffing levels,. Most tax filing processors and customer service employees are on furlough. Usually, over 15 million returns get processed by the end of the first week of February . Although a Trump administration official said on January 7, 2019 that federal income tax refunds would indeed go out despite a large part of the government being shut down, delays in issuing refunds are likely.
With a shutdown that President Trump has indicated could last months or even years, it would not seem wise to make your tax refund a major part of your financial plan. But what if you really need the money?
What to do? If the shutdown runs for an extended period of time and the IRS can’t process and pay your refund, you do have an option. You can indicate on your tax return that you’re applying your 2018 refund to your 2019 taxes and adjust your withholding now so that your 2018 refund plus the amount withheld for 2019 qualifies you for a safe harbor for your expected 2019 tax burden. To meet the safe harbor, you need to pay enough in taxes in a timely manner for 2019 so that you don’t face underpayment penalties when you reconcile what you owe by April 15, 2020. One safe harbor test is based on your prior-year tax burden. As long as your timely tax payments for 2019 are at least as much as your 2018 burden, you’ve met the test. You won’t have to pay more if your income increases during the year until the tax filing deadline in 2020.
For example, assume you had $60,000 in income for 2018, and you had $7,000 withheld from your paycheck during that year for federal income taxes. Once you complete your tax forms, you find that your total federal tax burden for the year came to $5,500, yielding you a tax refund of $1,500. At that point, if the IRS is slow in processing refunds, you can elect on your tax form to apply your 2018 refund to your 2019 taxes. You would then adjust your paycheck withholding so that you withhold less money to cover the taxes already paid. You benefit by getting bigger paychecks throughout the year and by having met your safe harbor. Remember, in January 2020, you would re-adjust your withholding to either meet the safe harbor tests for the new year or go back to withholding more so that you will have a refund from IRS when you file your taxes in the next year.
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