The government shutdown ended January 25th after 35 days of uncertainty and turmoil. With the government now open for the next three weeks, many Americans are wondering – what does this mean for my taxes?
Experts have warned that the shutdown will be causing “major” delays for the IRS. They cite evidence from the 16-day government shutdown in 2013, which resulted in refund delays totaling over $2 billion. Additionally, Mark Steber of tax-preparation company Jackson-Hewitt has said, “A shutdown lasting 10 or more days would create a higher risk of an impact on tax refunds.”
The IRS itself has said that it will take some time to recover. There are “millions” of unanswered letters that have built up during the shutdown, with some reports that it will take at least a year for the IRS to catch up and return to standard operations.
Why So Much Backlog?
Typically, the IRS receives around 200,000 pieces of mail per day – this increased to nearly 700,000 per day during the shutdown. This is because not only were taxpayers and tax professionals alike forced to send all tax-related requests through snail mail, meaning that in addition to catching up on their standard work, the IRS teams will have to sort through millions of physical letters and requests.
Furthermore, any meetings or appointments that had been scheduled to occur during the shutdown had to be cancelled. The IRS will also be working hard to reschedule and cover those appointments. Essentially, everything that had been put on hold for 35 days needs to be caught up on, in addition to the normal workload that began with the opening of tax season on January 28th.
What About The New Tax Reform?
The Tax Cuts and Jobs Act, or TCJA, signed into legislation at the end of 2017, is the most comprehensive piece of tax legislation since the mid-80s. In addition to the shutdown, there are also many questions surrounding what the TCJA means for you – the taxpayer.
Here’s a condensed rundown of what it means:
- Small reductions to income tax for most individual brackets
- An increase to the standard deduction to $12,000
- An increase to the child tax credit from $1,000 to $2,000
- Significant reductions to income tax for corporations
- A new tax deduction for owners of pass-through entities
- Some eliminations and limits on certain tax breaks, such as the eliminations of Miscellaneous Itemized Deductions and limits to state and local tax itemized deductions
Not only has the IRS been inundated with the standard tax questions that come from curious taxpayers, but they also are dealing with a whole fresh set of questions stemming from the recent tax reform.
Are There Staffing Issues?
Concerns with staffing have also been plaguing the IRS. Even with the reopened status of the government, the IRS is only taking about 35% of calls, as several federal workers found other work during the shutdown and did not show up to work on Monday.
Beyond this, it’s reported that the IRS lost 25 tech staffers per week during the shutdown, sparking concerns over whether the website is or will be functioning properly during tax season. Lags, error notifications, and general dysfunction has been popping up consistently over the past month.
Both taxpayers and tax professionals are experiencing a temporary reprieve now that the government is back up and running, but there are no guarantees that the government will stay open during the coming months for tax season. As of right now, the government has reopened for 3 weeks only – President Donald Trump is allowing these three weeks for negotiations between Democrats and Republicans on a funding appropriations bill. If an agreement is not reached by February 15th, he has said that the government may shut down again.
What To Expect
Overall, the consensus among tax professionals is that there will likely be delays in receiving your tax refund, with some speculating that the April 15th deadline may be extended. Additionally, if you or your tax accountant are looking for answers at the IRS, expect a wait. At this point in time, wait times are sometimes over an hour, with calls being dropped to cover more urgent issues as the workers scramble to get caught up.
If you have any questions about how the government shutdown may affect your taxes, or any questions about how the new tax code might affect you, reach out to Semaphore and one of our tax professionals will steer you in the right direction!