Back in 2010, the IRS was forced to delay when it began processing tax returns due to late passing legislation made by Congress.  In a recent letter from Acting Commissioner Steven Miller, who wrote to Representative Sander Levin, who sits on the House Ways and Means Committee, the IRS warned that this could be the case in early 2013.  Why?  Well, as Congress works on the Fiscal Cliff, there are two other pieces of legislation that must also be voted upon.  As noted in Commissioner Miller’s letter, these are:

  1. Whether the parameters of the alternative minimum tax are revised (referred to as “the AMT patch”)
  2. Whether any already expired tax deductions are revived and made effective for 2012 (the “tax extenders”).

AMT Patch Of the two items, this one poses the more significant challenge for the IRS.  AMT applies to individual taxpayers with incomes above specific thresholds set by law.  For many years, Congress has been “indexing” these amounts for inflation to prevent taxpayers from being subject to AMT.  If this is not done, or Congress delays doing it, under current law the thresholds revert to much lower levels for 2012 – $33,750 for individuals and $45,000 for married taxpayers filing jointly. At these levels, approximately 33 million taxpayers would pay AMT for tax year 2012 (with returns filed in the spring of 2013). This is about 28 million more taxpayers who would pay the AMT than if the exemption amounts were increased as in the past.

Tax Extenders At the end of 2011, a number of other tax provisions affecting individuals expired.  These include tax deductions for educators’ out-of-pocket classroom expenses, tuition and related fees for higher education, and state and local sales taxes.  The challenge for the IRS on these items is whether or not legislation will be passed to extend these provisions again.

So just how delayed could the filing season be?  According to Commissioner Miller if the AMT patch is enacted before the end of 2012, there would be minimal delays to opening the 2013 tax filing season for most taxpayers.  This is because the IRS has already programmed it’s systems as if the patch will be enacted.  However, if the AMT patch is allowed to expire, the magnitude and complexity of the changes necessary to get the system ready could delay the filing season for impacted taxpayers until late March 2013, if not even later.  Conversely, processing would only be delayed by about four weeks if Congress decides to revive and extend already expired tax provisions.

What This Means For You

  • Tell people to spread the word.  For some taxpayers, the timing of when they file and receive their refunds is critical to their financial situations.  Being informed that there could be delays regarding the above could impact items such as how Christmas spending is arranged for.
  • Be prepared for the possibility that tax return processing and the issuance of refunds may be delayed this upcoming 2013.  While you may be able to file starting in January, the IRS may hold these returns in a queue, which could create a processing backlog.  Depending on the size of this queue, returns that are filed in January may not be processed until a few weeks later, if not several.
  • Start to get your documents ready and file as soon as you have your information.  Firstly, you want to get your information in early so that if a queue does manifest, you are on the top of it and not the bottom.  Secondly, make your tax preparers life a little easier.  While the start of the filing season may move, the April 15th deadline will be the same as it is enacted by law.  With that being said, it will be a stressful time for most preparers and many will be thankful if you “help them help you” so to speak.

Be patient throughout the process.  A lot of what may happen is largely out of the control of your preparer, the tax software companies and even the IRS.  So while it may be a little frustrating, realize that we will all get through it if we just take the advice of our friends Telepopmusik and just breathe.

01/03/13 Update:  So on January 1st 2013 HR 8, the American Taxpayer Relief Act of 2012, was passed by the Senate and the House of Representatives.  This bill makes the AMT issue noted above mute as they have permanently patched AMT so it doesn’t have to be done every year.  They also passed some of the extenders as well.

Everyone is still awaiting definitive guidance from the IRS, but at this point in looks like filing may open late January or early February.

01/08/13 Update:  So the IRS has issued IR-2013-2 and announced today it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30.

The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers — more than 120 million households — should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes.