The tax law passed earlier this month by the lame-duck Congress has already had one result that is, well, lame: Millions of taxpayers who usually file their returns quickly to get an early refund will have to wait instead.
Because the law passed less than two weeks ago, the Internal Revenue Service is still scrambling to reprogram its computers to handle the income-tax deductions extended by the last-minute legislation — a process the agency says could take until late February.
That means at least 9 million early-bird filers nationwide who typically itemize the deductions on their income-tax returns will have to wait until the system is ready before they can claim their refunds, according to IRS estimates.
"We are hoping for a mid-February fix," IRS spokesman Dan Boone said Tuesday, "but we want to allow plenty of time to make sure it is done correctly." More than two-thirds of the nearly 140 million Americans who file federal returns each year will not be affected by the delay, either because they take the standard IRS deduction or file later in the tax season anyway, Boone said.
The IRS said taxpayers can minimize any confusion over the tax-law changes or extensions by filing electronically using commercial tax-preparation software or the e-file system available through the agency's website, irs.gov.
Tax-software vendors routinely provide customers with updates that reflect changes in the law. Chances are the software will be ready long before the IRS is ready to process returns.
The tax agency is recalibrating its computers to handle a series of tax breaks that were scheduled to expire but were extended by the new law. Among them are the deductions for state and local general sales taxes, which taxpayers have to list as itemized deductions on Schedule A of their return.
The delay also will affect those claiming the deduction of as much as $4,000 for college-education tuition and fees, or the educator-expense deduction of as much as $250 for out-of-pocket costs incurred by kindergarten-through-grade-12 teachers.
Although the IRS is hoping the transition will be seamless, some tax experts were skeptical.
Some people count on getting their annual tax refund early in the year, so any delay in the process can hurt, especially if the person is unemployed, behind on a mortgage or otherwise strapped for cash, said Toni Springer, a certified public accountant in Altamonte Springs, Fla.
"The delay for those who file Schedule A (itemized deductions) is going to be a real issue," she said. "And certainly it is going to cause a bottleneck the IRS will be dealing with that could make the process even longer than usual for a lot of people." Springer warned that the delay might prompt some people to turn to a "refund-anticipation loan" — a sort of quick-cash advance based on the expected size of their refund check. But such loans carry high fees, and there are better alternatives, she said.
She suggested that people who usually itemize should instead do their taxes early but claim the standard deduction, because such returns are not subject to the IRS delay. If you file that return electronically, your refund should arrive within seven to 10 days.
Later, you can file an amended return, with itemized deductions, to claim the remainder of your refund.
"There would be some minor additional cost and time to amend the return, but it would be worth the effort if you have an immediate need for cash," she said.
Springer suggested all filers should begin preparing their taxes as soon as possible, so they can be near the front of the line, ready to file as soon as the IRS gives the go-ahead, because everything will be delayed by the tax-break reprogramming.
"The last time this happened was a couple of years ago, when Congress waited until just before Christmas to make changes to the AMT (alternative minimum tax)," she said. "The IRS had to close its offices for two weeks then to get ready, and that caused a bottleneck as well."