Will Tax Refunds Go Out on Time? Late AMT Fix Has IRS Scrambling

IRS tax refund checkThe fiscal cliff may be a thing of the past, now that the president has signed into law the compromise bill that the Senate and House passed on New Year's Day. But for as many as two-thirds of all taxpayers, the verdict is still out on whether they'll get their tax refund checks on time.

In late December, the IRS said that as many as 100 million taxpayers could face delays in getting their tax refunds if the fiscal cliff weren't resolved before the end of 2012. Unless certain tax-law changes that the IRS was counting on were passed, IRS computers would need to be updated. That reprogramming job could have forced taxpayers to wait until late March before they could even file their returns, let alone expect refunds.

The complications were caused by the alternative minimum tax, which was originally intended to prevent the very rich from using loopholes and credits to avoid the tax man altogether. But time and inflation expanded the number of people who fell under the AMT, to the point where an estimated 30 million middle- and upper-middle income taxpayers would have been hit by higher tax bills because of it.

In past years, lawmakers had always passed an annual "patch" to the AMT that made inflation adjustments, preventing the tax from applying to those millions of ordinary taxpayers, and the IRS assumed that a similar provision would eventually be passed for 2012. But with the 2012 AMT patch in limbo during the fiscal cliff crisis, tens of millions of taxpayers could have been subject to the tax for the first time.

A Partial Solution

The newly passed law addresses the AMT in a more lasting fashion, making inflation adjustments for 2012, and making future adjustments automatic -- no further action from lawmakers required. That will save those 30 million or so taxpayers from having to pay an average of about $4,000 extra to the IRS this spring.

Sponsored Links
But even now that the fix has been made, the IRS is reluctant to say whether it will be able to avoid a tax refund crisis. Although the IRS has issued new withholding guidance that reflects the provisions of the new law, it says that it's "reviewing the details of this week's tax legislation and assessing what impact it will have on this year's filing season."

Because the inflation adjustment in the new law matches what the IRS expected, there's reason to be optimistic that the IRS will be able to process returns as expected. Still, until the IRS says when taxpayers can start filing their returns, there's also reason to fear that refunds could come later this year.

For more on taxes and your money:

Motley Fool contributor Dan Caplinger appreciates getting an AMT break. You can follow him on Twitter @DanCaplinger.

How to File Taxes with IRS Form 1099-MISC

If you receive tax form 1099-MISC for services you provide to a client as an independent contractor and the annual payments you receive total $400 or more, you'll need to file your taxes a little differently than a taxpayer who only receives regular employment income reported on a W-2.

Read More

Brought to you by TurboTax.com

Running for the (Tax) Shelter

Look to the home front to protect your assets. The only "surefire" tax shelters remaining are deductions such as your mortgage and donations to charity.

Read More

Brought to you by TurboTax.com

10 Things You Won't Believe Are Taxed

From Fantasy Football to cancelled debt, here are 10 things taxed by the IRS that might surprise you.

Read More

Brought to you by TurboTax.com

Is Interest on Credit Cards Tax Deductible?

The IRS allows you to deduct certain expenses from your total income to arrive at taxable income, which is the portion of your earnings that is subject to tax. Some of these expenses include your payments of interest on a mortgage and for business loans. However, when you use a credit card for personal purchases, the interest you pay is nondeductible personal interest.

Read More

Brought to you by TurboTax.com
Read Full Story