Weak First Week for Tax Refunds

Decline in average refundExperts trying to predict how the first tax season under the new law will pan out have come to varying conclusions. Some expect larger refunds that will bolster the economy through increased spending and consumer confidence. Others estimate that on average, taxpayers have already received their tax cut through changes in withholding, and may actually receive smaller refunds this year than in the past. While it’s still too early to draw conclusions, IRS statistics for the first week of the filing season offer little support for optimism.

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Personal Exemptions Still Exist

Form 1040Beginning in 2018, you won’t be claiming a deduction for personal exemptions on your federal income tax return. Yet personal exemptions still exist. They can make a difference on both state and federal income tax returns. Oddly enough, even though the amount you can deduct has been reduced to zero, for some taxpayers it’s still important to know the dollar amount of the personal exemption deduction under prior law.

details: Ghost of a Personal Exemption

Free Access to Quality Tax Software

Reduced number of itemizersIf you prepare your own tax returns, be sure to find out whether you can use one of the free offerings from leading software providers. Because of changes in the tax law, millions more taxpayers will qualify for these free offerings than in the past. Here’s our practical guidance on the best alternatives:

details: Free Filing From Software Providers

More Leeway on Estimated Tax

Waiver of penalty if you paid at least 85%.
For 2018, IRS will waive the underpayment penalty if you paid at least 85%.

As a general rule, we’re required to pay our federal income tax over the course of the year through withholding, estimated tax payments, or a combination of the two. Unless an exception applies, you pay a penalty if these payments total less than 90% of your tax liability. The tax law that took effect in 2018 changed so many rules that we can expect a larger than usual number of taxpayers to fall short of 90% that year. The IRS says it will waive the penalty if you paid at least 85%. The waiver isn’t automatic, though: you have to file Form 2210.

details: Estimated Tax Penalty Waiver for 2018

Shutdown Won’t Prevent Tax Refunds

Updated

Reversing course, the Trump Administration announced today that the government shutdown will not prevent the IRS from sending income tax refunds to taxpayers. The first posting of this item mentioned that a question had been raised as to whether it is legal to do so. In a subsequent information release, the IRS says Congress directed the payment of all tax refunds through a permanent, indefinite appropriation, and that the Office of Management and Budget, which had previously directed the IRS not to pay refunds during a budget impasse has reviewed the law and concluded that it may so so.

The release also sets January 28 as the date it will begin processing returns.

In their words: irs information release

Shutdown May Delay Refunds

Update: as explained here, the IRS now says it will be able to pay refunds during the shutdown.

The 2019 tax season was already bound to be challenging. We can expect plenty of confusion in the first filing season under a law that made sweeping changes affecting taxpayers in all categories. Add to that a complete redesign of Form 1040, taking a modular, block-building approach and eliminating the 1040-EZ and 1040-A versions. The IRS is still scrambling to get its form instructions and information publications in final form, and has yet to announce a date for the start of the filing season.

Now the IRS faces these challenges under the handicap of a partial government shutdown. Essential functions at the agency continue, including — when they’re ready — accepting tax returns and payments. According to the Wall Street Journal, however, the IRS generally doesn’t pay refunds during a shutdown.

Any substantial delay in paying refunds would produce hardship for millions of Americans who depend on receiving a substantial check as early as possible in the year. Tax refunds, which total hundreds of billions of dollars, also boost retail sales and the general economy. A shutdown that delays those refunds would have consequences for all of us.

New Form 1040 Now Available

The IRS has completely redesigned Form 1040, using what they call a building block approach, where the form itself is much shorter but is supplemented as needed by up to six new schedules. As a result, the same form can be used by all taxpayers, from those with the simplest to the most complicated returns. The new form, its 117-page instructions, and the new schedules are available now: About Form 1040

Free File Enhancements

The IRS has announced enhancements to the Free File program, through which many taxpayers can obtain free tax preparation services from commercial software companies. Some aspects of this program continue to be frustrating, but millions of taxpayers have found it useful, and it is now less likely that you’ll be snared into paying for tax prep while you still qualify for Free File.

details: IRS Free File