Impacts of the Government Shutdown on IRS Processing of Returns

The U.S. experienced a partial government shutdown from Dec. 22, 2018 to Jan. 25, 2019, the longest in U.S. history, and this has disrupted the service of multiple federal agencies, including the IRS.

Despite the shutdown, tax laws remained in effect: individuals and businesses were to keep filing tax returns and making payments as required. The Trump administration has promised that taxpayers who are owed refunds will be paid on time. The IRS traditionally issues more than 9 out of 10 refunds in less than 21 days of filing. Filing your returns electronically and selecting direct deposit for refunds is the fastest way to get those funds. Refunds are typically delayed if there are questions about the return or the IRS needs more information.

Tax refunds are a major cash influx for many American households. However, there is concern that some taxpayers may see a smaller refund (or potentially none at all) this year, given the changes to the tax code with the Tax Cuts and Jobs Act.

After the new tax law was passed, the IRS and Treasury updated withholding guidelines, which were designed to help employers determine how much to withhold from an employee’s paycheck to cover taxes. Unfortunately, the ability to estimate the impact of the tax changes on withholding rate grew drastically more difficult as the new tax law took effect. The Government Accountability Office said that about 30 million workers had too little withheld from their paychecks following the new tax law implementation, which increased their tax balance due.

To help ease the pain, the IRS is adjusting the estimated tax penalty for those who failed to withhold enough or sufficiently pay in estimated tax payments. The estimated tax penalty requires that a taxpayer withhold at least 110% of prior years’ taxes or 90% of the current years’ taxes.  Under the adjusted estimated tax penalty, anyone who paid at least 85% of the tax they owe will not pay a penalty.

There is a massive backlog of work for the IRS to attend to before turnaround times go back to normal. Industry experts generally believe the IRS will be able to handle the season’s basic demands. But problems that arise during the season, such as last year’s website failure on the Tax Deadline Day, could be more pronounced. Those seeking assistance from a real person at the IRS will struggle as the IRS is warning callers to expect long waits on the phone.

If you have any questions or concerns about the timing of your tax return filing and the IRS’ processing times, please reach out to your representative at DKC.