Congress’ procrastination means a delayed 2010 federal tax refund

Taxpayers did not benefit from Congress’s procrastination on deciding whether or not to extend the 2001 Bush tax cuts.  Despite having ten years to make a decision, Congress left it until two weeks before the extension would expire to address the issue.  As a result, the IRS must now reprogram its processing systems for provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010.  Among other things, this law essentially extended the 2001 Bush tax cuts for two more years.

 An entirely predictable consequence of Congress’s procrastination is that some federal taxpayers need to wait (in this case, at least until mid to late February) to file their individual tax return.  This will necessarily cause those receiving a federal refund to be delayed.  If you fall into at least one of the three categories, you need to wait to file your tax return and ultimately wait to receive any refund.

  1. Claim itemized deductions on Schedule A (e.g., mortgage interest, charitable contributions, medical and dental expenses, state and local taxes)
  2. 2. Claim higher education tuition and fees (deduction for parents and children covering up to $4,000 of tuition and fees paid to a post secondary institution)
  3. 3. Claim educator – expenses (deduction for kindergarten through grade 12 educators with out-of pocket expenses of up to $250) 

Because refunds are necessarily delayed, the government benefits from Congress’s procrastination at the expense of taxpayers.  Out of the 144 million that paid federal income tax in 2009, more than 97 million received a tax refund (excluding any stimulus payments).   More than two-thirds (68%) of income-tax payers received a tax refund in 2009. The government refunded over $330 billion.

The IRS provides an online calculator that estimates how much of your income should be withheld to avoid making the government an interest-free loan.  If you are an employee, this calculator can help you determine whether you need to give your employer a new W-4 form (Employee’s Withholding Allowance Certificate) to avoid having too much or too little Federal income tax withheld from your pay.

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  1. It is worth noting that congress passing late, or even retroactive, changes in the tax law has been very commonplace in recent years. Annual adjustments to tha Alternative Minimum Tax (AMT) and the ‘Marriage Penalty” have been the most common subjects of these late changes.

    The extension of the 2001 Tax Cuts was not delayed until after the election out of procrastination but from a desire to have it be a hot issue while soliciting donations from persons with larger net incomes. If their main pocketbook issue had already been resolved they may well have sat on their wallets.

    Similarly, I think that it is safe to say that the selection of a two year extension period was timed to match the next congressional election cycle. One can also speculate whether a two-year extension, rather than making the cuts permanent, wasn’t the desired end result all along. Why give up such a valuable fundraising tool?

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