DENTON (UNT), Texas — The 2019 tax season is officially underway, but there are a few factors that could complicate your Internal Revenue Service filing this year. There’s a looming threat for a second U.S. government shutdown, as well as new changes from the 2017 Tax Cuts and Jobs Acts being implemented this year.
University of North Texas tax expert Peggy Jimenez, a clinical assistant professor of accounting in the G. Brint Ryan College of Business, can weigh in on how the new legislation and possible government shutdown will impact this year’s tax filing season for businesses and individuals alike.
Will either the earlier shutdown or the pending shutdown affect the Internal Revenue Service’s ability to process refunds?
- Yes, but not completely. In the IRS’ lapsed appropriations contingency plan, it states that refunds can continue to be paid during a shutdown as they are paid from a permanent fund that is not impacted by the appropriation lapse. Additionally, the White House has said that during a shutdown tax refunds will continue to be paid. This is a departure from what we have seen in the past, when tax refunds were not issued during a shutdown. However, if taxpayers disagree with an IRS action – such as a refund reduction, levy on a bank account or reduced Earned Income Tax Credit – their options to appeal the action and obtain help will be severely limited.
- The IRS had limited operations during the government shutdown from Dec. 22, 2018 through Jan. 28, 2019, and it was already experiencing a work backlog before the shutdown. The shutdown and reduced workforce compounded the IRS’s backlog. Only about 12.5 percent of IRS employees remained through the end of the year; beginning Jan. 1, just half were authorized to work. Before the shutdown they were behind on responses to taxpayer correspondence, preparation for the filing season and other key roles. The Taxpayer Advocate stated that as of Jan. 24, 2019, the IRS had over 5 million pieces of mail to process, 80,000 Earned Income Credit Audits awaiting response and 87,000 amended returns waiting to be processed. The shutdown put additional strain on an already stretched agency.
Will there be any ramifications of the shutdown on other IRS functions – for either individuals or businesses?
- Taxpayers may find it hard to have their questions answered – particularly if they have questions related to the tax reform. There will also be delayed processing of paper returns. During a government shutdown, IRS offices are closed, so it is not possible to meet with an agent face-to-face to verify your identity in an identity theft case, to make large cash payments or to ask questions. Additionally, the number of telephone representatives is significantly reduced during a shutdown, so it can be difficult, if not impossible, to have questions answered. If neither of these issues cause trouble for the taxpayer, then they may encounter a delay in their tax return processing particularly if they file a paper return rather than e-file. If a taxpayer is negotiating a lien release with the IRS or otherwise appealing to the IRS to reduce their tax burden, they will find that IRS agents are not authorized to work on issues that relate to the return of taxpayer funds except for traditional tax return refunds.
What should accountants, individuals or companies do in anticipation of a shutdown?
- File as soon as possible, especially if you are mailing in your return and expect a refund. If we see another shutdown, the processing of refunds, particularly for those who filed a paper return, could be significantly delayed. Additionally, it may be difficult, or impossible, to reach an IRS agent with questions, so many more may benefit from a tax professional’s advice during this filing season than in prior years.
Related to that, of the changes from the tax laws passed in December 2017, what are the key changes individuals should be mindful of when filing this year?
- The 2017 Tax Cuts and Jobs Acts represents the largest tax reform program the U.S. has seen since 1986. One of the largest changes is the doubling of the standard deduction. This means that far fewer taxpayers will itemize deductions in the current year. Individuals that have historically itemized deductions, would benefit from looking at their prior tax returns to estimate if they think their itemized deductions for the current year will exceed the standard deduction ($12,000 for single filers, $24,000 for married couples filing a joint return and $18,000 for head of household). If taxpayers do not think their itemized deductions in 2018 will exceed these standard deduction amounts, they can save themselves the time required to gather the itemized deduction documentation. This may allow them to file their tax return earlier than they have in past years, which, given the uncertainty surrounding a future government shutdown, may be beneficial for many reasons.
- Some people may see smaller refunds. Beginning early in 2018, the federal income tax withholding schedules were adjusted to reflect the new tax laws. As a result, the income tax withholding decreased for many taxpayers. Additionally, the significant increase in the number of taxpayers that will claim the standard deduction rather than the itemized deduction increases the accuracy of paycheck withholdings for taxes throughout the year because the final tax liability for many will not depend on various itemized deductions. Essentially this means that for many taxpayers their paycheck tax withholdings were more accurate throughout 2018. Since the withholdings are more closely aligned with their final tax liability, many taxpayers are seeing a reduced refund when they file their tax returns. This can be frustrating when a taxpayer is used to receiving large annual refunds; however, this also indicates that the taxpayer had greater access to their funds throughout the year rather than waiting till year end and essentially loaning the government money until receiving their tax refund. If the refund or payment seen on your tax return is not what you want it to be, you can adjust the withholding amount by changing your Form W-4 filed with your employer.