Money Management Tips
Money at 30: The Makings of an Interesting Tax Season
We may only be in the second week of January but talk of tax season is already growing exponentially. Why? Well, in case you didn’t hear, the United States federal government is currently involved in a partial shutdown. Considering that the president has stated that the shutdown could last for months or years if he doesn’t get the requested funding for the southern border wall, this has raised questions about what would happen if the shutdown were to roll on into tax season proper.
With all of these questions looming, now seems like a good time to look at what’s happening regarding tax season and the government shutdown as well as discuss some aspects of tax refunds you may not have considered.
Do I still need to pay taxes in a shutdown?
Short answer: yes. Regardless of what happens, you will still be held responsible for filing your annual returns on time — meaning postmarked by April 15th (save some exceptions for residents of Maine or Massachusetts). Meanwhile, a reminder to those who pay quarterly taxes: fourth quarter payments are still due on January 15th.
Will I get a refund in a shutdown?
This question is a bit more complicated but, for now, the administration is saying “yes.” Although CNBC reports that the Internal Revenue Service (IRS) is currently only operating with 12% of its staff, the agency released a notice on Monday night indicating that they’d be recalling “a significant portion” of its furloughed workforce starting January 28th to help process returns. Concerning the legality of this move, the agency noted, “Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.”
Problem solved, right? Well, there’s a slight catch. Even if IRS employees were called back to work during the shutdown, they’d be forced to work unpaid until after the shutdown is resolved. This begs the question of whether or not unfurloughed employees would still report for work. One need not look further than reports that indicate call outs among Transportation Security Administration officers are way up in recent days to see how a similar situation could play out at the IRS.
What does this mean for me?
Although the IRS contends that refunds will go out in spite of an on-going shutdown, realistically it’s probably a good idea to expect delays in receiving your refund. Because of this you may wish to file as soon as possible. To that point, although the IRS won’t begin processing payments until the 28th, you can file your return as soon as it’s completed.
Why tax refunds aren’t as great as they may seem
This whole dilemma also brings up an important note: tax refunds, while welcomed each April by many, aren’t really such a good thing. Although they may feel like a windfall, the truth is that you could be putting this money to better use throughout the year instead of receiving it as a lump sum in the spring. That’s why, if you’re consistently seeing large annual tax refunds, you may want to update your W-4 and filing status. To do this, you’ll typically contact your employer’s human resources or payroll department.
By adjusting your filing and having IRS withhold the proper amount of taxes, you’ll receive larger paychecks. Sure some might see this as greater temptation to spend but it also gives you the opportunity to set more money aside in an interest-bearing account or investing it instead of having the government hold onto it for you. Moreover having this money in your control rather than the IRS’s could definitely come in handy in the event of an emergency.
With the partial federal government shutdown now in its third week, there are still several unknowns for what’s ahead. Among these big questions is whether or not taxpayers will still receive refunds during a shutdown. Regardless of whether or not delays do occur, this incident is a great reminder that there are better alternatives to waiting on a tax refund each year. So get your tax return in early, grab a new W-4, and buckle up for some more government drama.
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