The IRS can't pay out tax refunds during the partial government shutdown, and it's the biggest problem for people who need it the most

  • Tax refunds may be delayed if the ongoing partial government shutdown continues, according to the Wall Street Journal.
  • A delay in tax refunds may affect the taxpayers who need it the most — low-income households, who typically file taxes sooner than wealthy filers because they need the money more.
  • This comes during a year when many American taxpayers should be expecting bigger refunds than normal.

Taxpayers who file early in tax season may not receive their refunds in a timely manner thanks to the partial government shutdown that began on December 22, according to the Wall Street Journal.

If the shutdown continues, that could mean a delay in "billions of dollars in income-tax refunds," reported the Journal's Richard Rubin.

During the shutdown, the IRS has lost funding and is operating with around 12% of its employees, according to Rubin. While it can process tax returns, keep systems running, and conduct criminal investigations, it can't run audits, answer off-season taxpayer questions, or allocate refunds, he reported.

RELATED: 5 tax breaks no longer available

5 PHOTOS
5 tax breaks no longer available
See Gallery
5 tax breaks no longer available

1. Personal exemptions

For 2017, eligible taxpayers could claim an exemption for themselves and a spouse as well as exemptions for dependents. Each such exemption reduced taxable income by $4,050.

For 2018, however, there are no personal exemptions. Tax reform suspended them, basically meaning it made them temporarily unavailable.

Specifically, personal exemptions and many other tax breaks that were suspended by the Tax Cuts and Jobs Act will be unavailable for tax years 2018 through 2025.

2. Moving expenses

You cannot deduct moving expenses from your 2018 taxable income, either. Tax reform suspended this deduction for everyone except active-duty members of the U.S. armed forces who are ordered to relocate.

“During the suspension, no deduction is allowed for use of an automobile as part of a move,” states IRS Publication 5307, which outlines how tax reform impacts individuals and families in tax year 2018.

Tax reform also suspended the exclusion for qualified moving expense reimbursements for everyone but active-duty military members. So, if your employer reimbursed you for moving expenses in 2018, that reimbursement will be considered taxable income.

3. Casualty and theft losses

Tax reform modified the deduction for net casualty and theft losses, making it available only to taxpayers who suffered such losses that were attributed to a federally declared disaster.

Other requirements for this deduction remain in place, however.

“The loss must still exceed $100 per casualty and the net total loss must exceed 10 percent of your [adjusted gross income],” states Publication 5307.

4. Job-related expenses

Previously, folks who itemized their tax deductions could write off what the IRS refers to as miscellaneous deductions to the extent that they exceeded 2 percent of such taxpayers’ taxable income. But miscellaneous deductions are among those that have been suspended.

Miscellaneous deductions include unreimbursed employee expenses, such as:

  • Uniforms
  • Union dues
  • Business-related meals
  • Business-related entertainment
  • Business-related travel

So, if you paid for such expenses out of your own pocket in 2018 and were not reimbursed for them by your employer, you cannot write them off on your next tax return.

5. Tax preparation fees

This is another miscellaneous deduction and thus has been suspended. It includes:

  • The cost of tax preparation software programs
  • The cost of tax publications
  • Fees for filing tax returns electronically

So, if you paid any of these expenses in 2018, you can’t write them off on your next tax return.

HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE

The IRS typically begins accepting tax returns at the end of January and early filers can see refunds hit their account as early as February.

If the shutdown is resolved in a few weeks, it may not affect taxpayers, but the current situation increases the likelihood of a delay in refunds — which could put pressure on reaching a deal, Rubin wrote.

But if a deal isn't reached anytime soon, those who need the refund the most are the most likely to be affected.

"For many Americans, the tax refund is the single largest financial event of the year, and the people who tend to file early in the season are taxpayers who count on large refunds to pay down debt, catch up on bills, or make major purchases," Rubin wrote. "Those are disproportionately low-income households that benefit from the earned-income tax credit and other provisions that give them no income-tax liability or a net benefit from the income-tax system."

Former IRS director of legislative affairs Floyd Williams told Rubin that wealthier taxpayers typically file later and shouldn't be affected to such an extent. 

Read more: Here's a look at what the new income tax brackets mean for every type of US taxpayer this year

This all comes during a year when many American taxpayers should be expecting bigger refunds than normal under the new GOP tax law that went into effect in 2018.

An analysis by UBS estimated an increase in overall tax refunds between $42 billion and $66 billion this year, Business Insider previously reported

The bank found that most married filers with two children would see the biggest boost in their refunds for 2018 compared to 2017, particularly those making between $125,000 and $400,000 and those making under $40,000 a year.

However, single filers and residents of higher-tax locales like New York and California may see smaller refunds under the new tax law.

The new tax law was already projected to increase the risk of a delayed start to the 2019 filing season, according to the IRS, plus there are some new changes for taxpayers to watch out for.

See Also:

The 10 Most Overlooked Tax Deductions

Don't overpay taxes by overlooking these tax deductions. See the 10 most common deductions taxpayers miss on their tax returns so you can keep more money in your pocket.

Read More

Brought to you by TurboTax.com

How to Find a Good CPA for Your Taxes

Finding a good CPA for your taxes is simple with these seven tips: 1. Ask about their specialization; 2. Verify their identification number, 3. Look up their license, 4. Consider their experience, 5. Confirm their willingness to sign, 6. Ask for advice, and 7. Determine their fees.

Read More

Brought to you by TurboTax.com

Reporting Self-Employment Business Income and Deductions

Self-employed taxpayers report their business income and expenses on Schedule C. TurboTax can help make the job easier.

Read More

Brought to you by TurboTax.com

2018 Tax Reform Impact: What You Should Know

Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.