Friday, March 12, 2010

You Might Have To Wait for Your Tax Refund.

Economic troubles are affecting people and businesses alike.  We also hear that the troubles are causing state governments to cut back as well.  This has included mandatory pay freezes, furlough days and the prospect of increased taxes.  Soon, however, people can expect to start seeing yet another impact of the times.  This one, however, is likely to impact even more people across the country and make people even angrier.

On Friday March 12, the USA Today reported that states across the country are going to hold on to tax refunds for months after tax returns are filed. (States May Hold Onto Tax Refunds For Months.)  ABC Nightly News reported that Alabama, Arkansas and North Carolina may delay refunds for months and New York expects to delay refunds by several weeks.  The stories explain that the delayed refunds are the result of cash flow problems in these states.  Unfortunately, however, there will be little for taxpayers to do other than to get angry and plan to avoid becoming victim to the same problem in the future. 

The best way to be sure that you aren’t affected by the government’s inability to issue a tax refund in future years is to avoid being owed a refund in the first place.  When you are owed a refund it means that you have essentially given the government an interest free loan equal to the amount of your refund.  For the majority of taxpayers this is the result of an employer withholding too much income tax from the employee’s paycheck during the year.  This, however, is not the employer’s fault.  The employer is withholding the amount of tax that the employee told it to on the Form W-4 that the employee filled out.  If an employee receives a refund year after year, he or she should consider filing a new W-4 to reduce the amount of income tax withheld from each paycheck.  By doing so, that person puts more money into their pocket with every paycheck and avoids the risk of the government not being able to give the money back at tax time.  

Certainly people look forward to receiving their expected tax refund every year.  They even plan what the money will be used for well in advance of filing their tax return.  However, these days, relying on the government’s ability to give the money back in a timely fashion is increasingly risky.  Perhaps, however, if we all could collect from the states the same kind of penalties that they impose on us if we fail to pay, the government would send our money back promptly.

No comments: