Here's another 'fiscal cliff' worry: tax-filing delays
With some investments already feeling the pain of the looming cliff, millions of Americans are at risk of being affected. The first to consider is the expiration of the Bush-era tax cuts, according to CNBC's Jackie Deangelis.If you’re the type of person who likes to file your income tax return as soon as possible, then you’ve got another reason to be frustrated by the fiscal cliff stalemate in Washington, D.C.
Most of the tax changes being discussed as part of the fiscal cliff negotiations would go into effect in 2013, meaning that taxpayers would first have to account for them when they went to file those tax returns in early 2014.
But a handful of the provisions under discussion could affect Americans’ 2012 taxes. The down-to-the-wire negotiations in the nation's capital could leave the IRS scrambling to adopt the changes in its systems, delaying the agency’s ability to accept some people’s returns.
“Congress oftentimes waits until the last minute to pass legislation, and then that in a turn affects the IRS,” said Bob Meighan, vice president with tax provider TurboTax.
That's definitely been the case this time around. Just a few days before the end of the year, Congress has not been able to come to an agreement over a series of tax increases that are scheduled to go into effect Jan. 1. President Barack Obama said Friday that he was "modestly optimistic" a deal could still be reached to avert going over the so-called fiscal cliff.
Acting IRS Commissioner Steven T. Miller has already warned that there could be serious filing delays if Congress doesn’t provide a patch for the Alternative Minimum Tax. An IRS spokesman said Friday that the agency did not have any further information beyond the warnings Miller gave to lawmakers in a letter earlier this month.
The AMT is a provision in the tax code that was designed to ensure that wealthy taxpayers have to pay at least a minimum amount of taxes. It was never indexed for inflation, however, so Congress has had to provide temporary fixes over the years to ensure that lower-income taxpayers aren’t affected.
That hasn’t happened yet this year because of the fiscal cliff stalemate. In the letter to House Ways and Means Committee Chairman Dave Camp earlier this month, Miller, the acting IRS commissioner, warned that if Congress doesn’t provide a patch this year, then the IRS would have to make significant programming changes to account for that.
Miller also warned that as many as 30 million additional taxpayers could be subject to the AMT if a patch isn’t put in place.
For now, Miller said the IRS is acting as if Congress will provide an AMT patch.
Meighan, of TurboTax, said his company also has prepared its software as if a patch will be in place. But he said the company also is ready to switch gears quickly if it must.
Meighan said a few other provisions under discussion as part of the fiscal cliff negotiation could affect a minority of taxpayers in 2012. Those include a deduction teachers get for school supplies they purchase for their classrooms and a tuition and fees deduction that applies to some students.
"It's really gotten to a point now where you have the ideological divisions in the country overlapped now with the partisan divisions," said CNBC's Chief Washington Correspondent John Harwood.The IRS has had to ask people to delay filing their returns before. In 2010, Congress passed last-minute tax law changes on Dec. 17. As a result, the IRS said it wouldn’t be able to accept returns with itemized deductions until February of 2011 because it needed time to adjust its systems.
If people are forced to wait to file their tax returns, that would also mean a delay in getting tax refunds. Roberton Williams, a senior fellow with the Tax Policy Center, said that in turn could have some effect on the economy because many people count on that money to pay off debt or buy big-ticket items.
If the AMT isn’t patched at all, he noted, that would be an even bigger economic hit because some taxpayers wouldn’t get their expected refund at all.
“That will have a major effect on the economy,” Williams said. “It will be pulling a lot of money out of the economy that people are expecting.”
Despite the Congressional deadlock, experts say they are still assuming a deal will be made to put the patch in place.
“For most people, come 2013 they’ll be able to file their taxes, they’ll get their refund and life goes on,” Meighan said.
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Total of 17,031 votes - click on the "Display Comments" bar below to sort comments
As soon as possible - in January if I can
Sometime in February or March
At the last minute - April 15 if I can