Government Shutdown Would Delay Tax Refunds

The head of the IRS conceded Wednesday that a federal government shutdown -- threatened for as early as 12:01 a.m. Saturday morning -- would delay refunds for taxpayers who file their returns on paper rather than electronically.

Speaking at the National Press Club, IRS Commissioner Doug Shulman first dodged the question about whether a shutdown would delay refunds, “I encourage all taxpayers to file by April 18,” the IRS head said. He stressed that the possible shutdown -- which will result if Democrats and Republicans in Congress fail to agree on a measure to fund government operations -- would not alter the April 18 deadline for filing 2010 returns.

When pressed, Shulman again danced around the question, assuring the audience that returns filed electronically -- the IRS’s preferred method -- would be processed and refunds paid promptly whether or not the government were funded. “It’s done automatically,” he said.

Finally, he conceded that a government shutdown would slow the processing of returns filed on paper . . . and delay the payment of any refund due the taxpayer.

The length of the delay would depend on how long it takes Congress to agree to fund the government so that “nonessential” federal employees could return to work.

Last year, one in three taxpayers filed paper returns.

Through mid-March of this year, the average refund paid by the IRS on 2010 returns was $2,985.

At this time of year, when the IRS is flooded with returns ahead of the mid-April deadline, it generally takes six to eight weeks to process paper returns and send refund checks to taxpayers via the U.S. mail. Refunds claimed with electronic returns and deposited electronically into taxpayers’ bank accounts are often paid within a week or so. Shulman did not address whether electronic returns that call for refund checks to be mailed would be affected if Congress fails to fund the government.

Although most taxpayers receive refunds, Kiplinger’s has for years encouraged taxpayers to closely match the amount withheld from their paychecks to their actual tax bill.

We have created an Easy-to-Use Tax Withholding Calculator to help you do just that. It won’t help you if your 2010 return is delayed by a government shutdown. But it will protect you from being in this boat again in the future.