Several states plan to delay payments of tax refunds

If you're due a state tax refund this year, you should probably prepare to wait awhile for that check to arrive. Four cash-strapped states, including Alabama, Hawaii, New York and North Carolina are planning to delay refund payments this year in order to cover budgetary shortfalls. And it's possible that more states may follow suit, in particular Idaho and Kansas.

The problem? Many states are simply struggling to stay afloat. A recent report from the Center on Budget and Policy Priorities says the recession has "caused the steepest decline in state tax receipts on record." The organization found that at least 41 states face budget shortfalls for fiscal 2010, which in most states ends June 30. Nine states have budget gaps that are more than 10% of their 2010 budget, including Arizona, Hawaii, Illinois, Kentucky, Nevada, New Mexico, Oklahoma, Rhode Island and Virginia.

Delayed tax refunds may not end up being a one-year phenomena. The Center expects the states' budget shortfalls to be as large or larger in fiscal 2011. "States will continue to struggle to find the revenue needed to support critical public services for a number of years," the report says.

What does all this mean for your tax refund? It depends on where you live, but so far only four states have publicly announced a slowdown in issuing tax refunds.If they take too long, some states (depending on their individual laws) may have to start paying interest on those refunds.

Residents of Hawaii may not see their refund payment until late summer. In January, Hawaii's Department of Taxation said all net income tax refunds for tax year 2009 will be delayed until July 1, 2010. The action is expected to net the state $275 million, which it says it will apply to its current $721 million budget shortfall.

North Carolina has not been as straightforward as Hawaii about delaying its refunds, but it did post this message on its web site: "The state continues to feel the effects of the slow economy, and the department is managing the distribution of refunds as a result. We manage those distributions on a week-to-week basis, which means the department is unable to provide estimated time frames when taxpayers will receive their refunds."

A spokesperson for Alabama's Department of Revenue has told several news outlets that refunds will be delayed because the state can only pay out funds when they are available. "We're still in a serious recession, and the cash flow in Alabama is tight, and, because the cash flow is tight, refunds take longer. That's just a fact. This carries over from last year. And, we're very sorry about that," State Revenue Commissioner Tim Russell told Huntington, Ala.-based news channel WHNT 19.

New York's delays are minor compared to Hawaii -- at least so far. The state said it won't be issuing its checks until the start of the new fiscal year, which begins on April 1. However, the state has yet to make a final decision about longer delays -- a move that has been proposed by Governor David Paterson. The state limits the amount of tax refunds it can issue during the first three months of the year to $1.75 billion. Patterson is considering reducing that amount to $1.25 billion in order to deal with next year's ever-increasing budget gap, according to news reports.

In Kansas, there have been murmurings that the state may be late paying its taxpayers back, but nothing has officially been announced. In an interview with The Winfield Daily Courier, Kansas Secretary of Revenue Joan Wagnon indicated that delays may be imminent given the state's budget crisis. "I think there's every possibility that we won't be giving those refunds out," she was quoted as saying.

Idaho has put a stopgap in place to prevent delays of its refunds. The state took emergency steps earlier this month to shore up its refund account, which had run dry after it paid early filers their refunds. The state's legislature infused $30 million from its general account into the tax refund account which, for the time being, should help it avoid any major delays issuing refunds. There is a chance, however, that minor delays may occur as the state waits for more tax receipts.

Not all states are so reluctant to pay up. In fact, Missouri residents could get their state tax refunds earlier thanks to a bill passed March 2 by the state's House. Under current Missouri state law, tax refunds can be delayed for up to 120 days before the state is required to pay interest. The legislation just passed by the House will limit that time to just just 45 days. This 45-day period will take effect as soon as the new rules become law.

Contact your state's Department of Revenue to find out if your tax refund will be delayed.

Lita Epstein has written more than 25 books including The Complete idiot's Guide to Personal Bankruptcy and The Complete Idiot's Guide to Social Security and Medicare.

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