Billions of dollars worth of tax refunds are at risk of being delayed

As the Federal government shutdown enters its third week, if it’s not resolved soon, there’s a risk that it could stop tens of billions of dollars worth of income tax refunds.

“This [shutdown] could even extend into months rather than weeks,” Capital Economics’ Chief US Economist Paul Ashworth wrote in a recent note. “Up to now, the economic cost has been limited. But the disruption will increase exponentially for every week the shutdown isn’t resolved, particularly if it delays the payment of tax refunds next month.”

Many taxpayers file much earlier than the April 15th deadline to receive their refund check sooner from the Internal Revenue Service. In the scenario of a prolonged shutdown, those refund checks won’t be mailed on time.

RELATED: 5 states residents are fleeing to avoid tax rates

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5 states residents are fleeing to avoid tax rates
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5 states residents are fleeing to avoid tax rates

#1: California
Moving to: Nevada

Nevada does not have a state income tax on individuals or business entities, while California tacks on a whopping 13.3 percent income tax rate to residents.

Place to live: Clear Creek Tahoe
Private residential community located on the eastern slope of the Carson Range in Western Nevada, set on 2,136 acres bordering 6 million acres of national forest. 

#2: Minnesota

Moving to: South Dakota

Minnesota's income tax rates range from 5.35 percent to 9.85 percent while South Dakota's does not have an income tax rate.

Place to live: Prairie Hills
Luxury community in Sioux Falls, South Dakota

#3: Oregon

Moving to: Washington

Oregon's income tax rate is 9.9 percent, Washington has no income tax.

Place to live: Aldarra Golf Club
Private, membership-only golf community east of Seattle.  

#4: Arkansas

Moving to: Texas

Arkansas has an income tax rate of 6.6 percent, Texas has no income tax.

Place to live: Avilla
Luxury living community in Plano, Texas.

#5: Georgia

Moving to: Florida

Georgia has an income tax rate of 6.6 percent, Florida has no income tax rate.

Place to live: Grand Haven
Golf community seated on a 4,000-acre nature preserve on the Intracoastal Waterway

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"[The] longer the shutdown lasts, the more government services will grind to a halt. The IRS usually pays around $125 [billion] in tax refunds in February and a further $75 billion in March," Ashworth wrote. "In [annualized] terms, that would be equivalent to an 11% decline in GDP."

Capital Economics

The average tax refund is around $2,899 to $3,031. For many Americans, it’s a substantial influx of cash that can be used to pay off debts, add to savings accounts, or spent.

"Of course, once the shutdown ended, Federal salaries would be paid and tax rebates sent out, so the impact on first-quarter GDP should be much smaller than that… as long as the shutdown ends within the next month or two,” Ashworth said. “Unfortunately, there is no guarantee that will happen since both sides appear to be hunkering down for a very long fight.”

Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter. Send tips to laroche@oath.com.

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