How does the government shutdown affect tax returns?

Question

Has a government shutdown in the past affected tax returns? In terms of refunds, is there anything to be expected differently based on historical precedent?

Answer 1

During the partial shutdown of the US Federal government, the IRS will continue to collect tax and process income tax returns, but refunds will not be paid out until the shutdown has ended. There have been numerous articles written on this subject - I am linking to one here. Google will give you many more.

MarketWatch - 3 unfortunate ways the government shutdown will impact you

[Edited to provide additional information]

An article from the Journal of Accountancy gives some good additional information regarding exactly what functions the IRS will and will not be performing during the shutdown, as spelled out in the Lapsed Appropriations Contingency Plan that was filed. Among the non-exempted activities (that will cease during the shutdown) are:

• Issuing refunds; Processing Form 1040X amended returns
• All audit functions and examinations of returns
• Processing paper tax returns that do include remittances
• Taxpayer services, such as answering taxpayer questions

Recently By Brittany De LeaPublished January 07, 2019, Personal Finance in FOXBusiness 4: "The Trump administration said on Monday that despite a prolonged partial government shutdown the Internal Revenue Service would still send out tax refunds.

The White House Office of Management and Budget announced the decision in order to make the shutdown as “painless as possible” for citizens, in the event it carries on into tax season."

Answer 2

The bottom line is that no one knows, and it is dependent upon your particular situation. This is pure speculation, but I think that most people will not be affected. Given that W-2s are employer generated, and most people's tax filings and refunds are automated, they should get their refund on time.

In some respects, the IRS is still working, I got some correspondence that was generated during the shutdown, asking for further information about a past tax return. (2016) If that is the case, then the IRS is still functioning on some level.

Will the checks be delayed because of funding? Maybe. If you read any article on this subject, it is clear the intent is to scare the reader. No one knows exactly how this will play out.

This is one part of actionable intelligence in all of this. That is to reduce your withholding so that you receive a smaller refund or even owe some. Your goal is to be plus or minus 1,000. If you owed a small amount, say like $300, you would pay it and this shutdown you affect you even less.

Answer 3

The IRS may process refunds normally

The Donald Trump administration claims that they will refund taxes during the shutdown. From the New York Post:

Taxpayers who are owed refunds will be paid on time, despite the government shutdown that has closed many federal agencies, a Trump administration official said Monday as concern mounted over the risk that the payments could be delayed.

And later:

In 2011, the chief counsel at the IRS concluded that such payments were legally allowed during a shutdown. At the time, the White House Office of Management and Budget, under President Barack Obama, rejected that position and directed the IRS not to pay refunds during a shutdown. But the IRS said Monday in a news release that the OMB had reviewed the issue at the Treasury’s request and now agrees with the IRS counsel’s position.

The IRS said it will recall a “significant portion” of its roughly 52,000 furloughed employees to work on tax returns. The agency also announced the Jan. 28 date to start processing returns. That’s within the normal timeframe.

This confirms other reports that previous shutdowns did not pay refunds during a shutdown. But it claims that this time will be different. While we do not know if that's true, it is at least a suggestion of it.

If you don't want to trust them

An alternative would be to

1. Write up your tax return and determine the amount of your refund.
2. Adjust your withholding for this year's taxes to zero until you would have withheld the amount of your refund.
3. Adjust the withholding back to normal (perhaps a little less than previously so as not to have a refund next year).
4. Submit the tax return and choose the option to apply the refund to next year's taxes. Finally a use for that option!

You will then have the amount of your refund and have the normal amount of taxes prepaid. You will not have to rely on the IRS to process your refund, as you are telling them to keep it. And you can do that now, as you are reducing your 2019 withholding in the amount of the refund from your 2018 withholding.

Or just wait until either the shutdown is over or the IRS is reopened specifically to process refunds. That may be faster. Once you submit your tax forms, you can't change your mind about applying the 2018 refund to 2019 taxes after April 15th. So it's possible you could submit the forms, the shutdown ends, and you end up waiting longer for your money.

Answer 4

According to this article the IRS will pay refunds as usual.

The Internal Revenue Service will issue refunds to taxpayers even if the U.S. government shutdown extends into the filing season

...

In previous shutdown contingency plans, the IRS would accept tax returns during the filing season, but refunds would be delayed until the government was funded. Vought said the administration is fixing what he called a problem faced by past administrations.

Answer 5

The Trump administration is claiming as of 1/8/19 that they will recall IRS workers and issue refunds despite any shutdown. But any attempt to make that move may be challenged in court (possibly by federal workers who are currently furloughed, possibly by members of congress).

https://abcnews.go.com/Politics/trumps-plan-issue-tax-refunds-time-illegal-top/story?id=60231541

Long story short, it's very hard to say what will happen on this one, until either (a) the shutdown ends or (b) refunds actually get sent out. It's quite possible litigation will be a major issue here.