Taxes

State Governments May Not Return Tax Rebates On Time, But At Least They're Sorry About It

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The New York Times is reporting that a number of state governments won't be sending taxpayers their tax refunds on time:

Procrastination is no longer just for the taxpayers who wait until the last moment to file their tax returns. Thanks to the economic downturn, at least a half-dozen cash-poor states are now delaying their tax refund checks.

Hawaii initially planned to delay all tax refunds until July, when its fiscal year begins, but decided two weeks ago that its finances were healthy enough to begin sending checks to people whose tax returns were processed back in January. New York briefly postponed sending out half a billion dollars worth of refunds until its new fiscal year began in April. Rhode Island extended its tax filing deadline until May 11 to help taxpayers who were still reeling from severe floods; now the state is delaying refunds to make sure it has enough money left to pay debts coming due in June.

On the other hand, they are sorry. And to prove it, they're all going to pitch in. Teamwork!

"We're sorry for the inconvenience. We understand that people are relying on the money for credit card bills, etc., etc., but we'll get them out as fast as we can," said Paul L. Dion, the chief of Rhode Island's Office of Revenue Analysis, explaining that 34,423 refund checks were being held up as the state ensures that it has enough cash on hand to pay its debts on time. "For the record, mine is on hold as well."

Some states lack the staff to process returns on time. Budget cuts left Iowa's Department of Revenue without the money to hire the 50 temporary workers it usually adds around tax time. So some refund checks were slowed while nearly everyone in the department—from auditors and revenue agents to top agency officials—was directed to pitch in by opening up envelopes and processing tax returns. 

No doubt it helps that many states require additional interest be paid on returns delivered later than 60, 90, or 120 days. As policies encouraging prompt repayment go, that's better than nothing. But why shouldn't the penalties be immediate? They are for the rest of us. The IRS begins assessing penalties on late tax filings for individuals the day after the deadline. I frequently hear people refer to their tax rebates as a sort of cash-back bonus, but the reality is that most tax returns effectively serve as interest-free loans from taxpayers; interest doesn't kick in until the government is two months late with the rebate. It's bad enough that the tax system is set up to give the government all those cheap loans in the first place. Shouldn't the penalties for late repayment be strict enough that state governments aren't tempted to extend those loans further?

More in we-are-out-of-money stories here and here.

Post updated for clarity.

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  1. Apologies with “etc., etc.” in them are wholehearted apologies.

  2. The whole system is inefficient. They should just take your whole paycheck up front, and then parcel it back out to you as you need it.

    That way, nobody has to pay penalties, and the states won’t have liquidity problems. TWO PROBLEMS SOLVED AT ONCE, PEOPLE. You’re welcome.

    1. It won’t work. Within two years the government will be out of money again. They’ll start parcelling back less and less until they’re getting everything, you’re getting nothing, and they’re still broke.

  3. the reality is that a tax return, if sent back before the 60-day-late penalty deadline, is essentially and interest-free loan from taxpayers.

    Umm, its an interest-free loan to the government even if you get your refund on time.

    1. Umm, its an interest-free loan to the government even if you get your refund on time.

      Getting any refund means you loaned the gov’t money interest free.

      Personally, I prefer to owe a few bucks when I file. People who consider a tax refund a “windfall” don’t really understand the system

      1. Thank you Milton Friedman!

        I swear, for all the good that man did, it’s appalling that he invented one of the absolute worst aspects of the tax system; one that makes it so that many people don’t realize how much of their money the government is taking.

      2. Ok Chicago Tom but if you want to get your tax refund then online or electronically tax refund is the best option for you. There are so many benefits are available in online tax filing. Get your form, deduction and more from online tax sites. There are so many sites are available in market for file your state tax exactly and with that they all are provide full security.

  4. R C – Yes, that’s what I was saying, perhaps inelegantly. To be clear: It’s interest free up until the 60-day-late mark, at which point many local governments do have to pay interest.

    1. Updated the post in hopes of making it a little more clear.

  5. Another reason to be happy to be a Texan.

    1. Seconded.

      1. WA doesn’t have an income tax, which is even better.

        1. Live Free or Die, baby, no sales nor income tax!

          1. Yet your property taxes are brutal.

            1. True, but overall I think we do pretty well. If you are OK with renting, you can skip the property taxes (directly, at least).

            2. Property taxes are better taxes, if you must have taxes.

        2. Given that Texas doesn’t have an income tax, exactly how is WA not having one “even better”?

          1. Because you’re in WA, not fuckin’ Texas

  6. Moral of the story – if you’re a W-2 employee, take an extra exemption or two on your W-4, get less withholding, and pay in April if you must. If you’re a 1099/self-employed/partner/member, try to actually pay your estimates based on projected income.

    1. Moral of the story – if you’re a W-2 employee, take an extra exemption or two on your W-4, get less withholding, and pay in April if you must.

      That’s what I do. You’d be amazed at how many people think I am nuts to prefer to not get money back at tax time.

      It takes a while to get them to understand that a tax refund is really the government just giving you back the overpayments you made throughout the year sans interest. Money that could have been earning interest for you instead.

      1. Money that could have been earning interest for you instead.

        Interest that you then get to pay taxes on, but I’d still rather that then give the government an interest-free loan.

        1. Interest that you then get to pay taxes on, but I’d still rather that then give the government an interest-free loan.

          Exactly. Even interest that I will have to pay tax on is a net positive compared to giving it to Uncle Sam and getting no interest.

  7. I’m so sick about hearing people eagerly awaiting their tax refund like it was lottery money. It’s your money, stupids. You’re just getting it 12, 11, 10, etc. months late.

    1. I love when people blow their refund on something they would never normally buy. It’s free money, yo!

      1. So, ya think that consequence is Unintended?

    2. I’m so sick about hearing people eagerly awaiting their tax refund like it was lottery money. It’s your money, stupids. You’re just getting it 12, 11, 10, etc. months late.

      Everyone I know who has this attitude all have one thing in common.

      They aren’t good at managing their money. Whenever I try to explain why it would be better to owe a little bit rather than get money back (since this would allow me to pay the gov’t late without penalties or interest — essentially getting a small government loan for free), they always say the same thing…

      “Yeah but I probably won’t have that money laying around when Tax Day comes around. If I have it, i will probably just spend it and have to scramble to come up with what I owe” and then they explain how nice it feels to have the government putting it aside for them and then surprising them with this unexpected money.

      I always ask incredulously — is it really that difficult to just put that money in a saving account and not touch it til tax time? Most say that it is.

      I’ll never be able to relate to people who are incapable of not spending money that they have access to.

      1. It’s the evil corporations and their nasssty advertising that forces people to spend. Why must you blame the victims, Tom?

      2. They are usually the same people who think they have to buy a new car when the one they have hits 100,000 miles. (My mother.)

        1. Actually, that’s because I “missed” when we were in the back seat on Saturday night. She didn’t want to tell you the truth.

      3. I always ask incredulously — is it really that difficult to just put that money in a saving account and not touch it til tax time? Most say that it is.

        There are all sorts of strategies people can do. Most companies let you parcel out your direct deposit to multiple accounts. It’s not that hard to ask for, say, an extra $50 to go directly to savings, maybe at a different bank, an online bank, or a money market or short term bond mutual fund, and then never think about that money (except for real emergencies.)

        If you’re bad with money, you can hide it from yourself and still get interest, better than this.

        Preaching to the choir, I know.

        1. This is what I ended up doing. This way, if I miscalculated, I have the cash handy for extra taxes.

          For the longest time I thought you had to be factual when filling out the W-4 number of dependents.

      4. Some of us have erratic income, or no idea what the capital gains distributions will be on our investments for the year. So I over withhold. It cost me about $15 loss interest last year but I saved all the time trying to figure out how to adjust the W-4 or make quarterly estimate payments.

        1. Some of us have erratic income, or no idea what the capital gains distributions will be on our investments for the year. So I over withhold. It cost me about $15 loss interest last year but I saved all the time trying to figure out how to adjust the W-4 or make quarterly estimate payments.

          creech,

          I don’t want my statements to come off as painting with a broad brush.

          Individual situations dictate what is right for each person. And people in this situation are making an informed decision.

          The people I know personally (friends and relatives) that have this attitude are simple salaried employees who don’t have capital gains taxes or erratic income.

          Oftentimes don’t even consider their refund “their money”, but instead look at it like the government gave them free money. Those are the people that make me shake my head.

          1. Oftentimes don’t even consider their refund “their money”, but instead look at it like the government gave them free money.

            And we wonder why the libertarian message is so hard to get across to some people…

      5. I’ll never be able to relate to people who are incapable of not spending money that they have access to.

        You seem to be able to relate to Congressional Democrats…

        1. Wait, is he married?

    3. even more stupid – waiting to get a refund check so they can pay off the credit card debt they’ve been accruing all year, paying 18% or more interest on — not realizing one reason they have been short of cash is because they’re loaning the govt money interest free out of every paycheck.

  8. now the state is delaying refunds to make sure it has enough money left to pay debts coming due in June

    It’s like you can’t even trust these guys. My world is shattered.[sob]

  9. The catch-22 is that I want to use my tax return money to run a tv advertisement where my robotic voice circles in on a PA state employee’s house and I ominously say that I know where he/she lives.

  10. Alabama has been late with my state tax return for the past 3 years or so. I’m at a loss as to what to do, though, since the form you fill out makes it clear that doing anything about it is illegal:

    PENALTIES
    Penalties are imposed for willfully supplying false information. If an employee is believed to have claimed too many exemptions, this information should be reported to the Alabama Department of Revenue, Withholding Tax Section.

    Is that just bluster? Can I falsely claim a couple of exemptions?

    1. I have never heard of anyone being prosecuted for claiming too many exemptions. The only time that they might care is if you claim so many exemptions that you have to make estimated payments the following year.

      1. Same here. The most I’ve seen is someone claim 11 exemptions on their W-2. They showed married filing joint with 2 dependents on their return.

        It’s not like taxing authorities are really comparing withholding exemptions to tax returns.

        1. I claim 10 exemptions (on three dependents). No foolin. But my situation is a bit unusual. I also “paid” negative federal income tax again this year – completely on the up and up. I get a shitload of credits, deductions, exemptions, whatever the feds can come up with. (It helps to have kids in college and in diapers, though hopefully not the same ones.)
          Thanks, suckers.

    2. Who’s going to report you? Does your payroll dept know how many kids you really have?

      1. And besides, there are reasons to claim extra exemptions besides dependents; that’s why they have those worksheets.

        I know one person who is a foreign grad student; her parents bought her a condo instead of her renting. Naturally, they put the mortgage in her name so that the interest could be deductible. (They don’t file US taxes.) So she has this enormous itemized deduction every year. She wasn’t claiming the proper number of exemptions until I helped her with her taxes and told her she should be claiming more. They do have that worksheet for if you itemize.

      2. I’m not worried about getting reported, really. My concern is that during an audit a lie here would be pretty easy for them to demonstrate, and that even if an audit would otherwise be clean, I would still get fined.

        Probably I should stop worrying about it and claim a kid or two…

        1. I used to think the same thing. It’s totally on the up&up;. http://www.irs.gov/individuals…..96,00.html

    3. Without going into details, I’m 100% sure no one in AL WT gives a shit.

    4. If your taxes withheld closely match your tax liability have you “claimed too many exemptions?” It seems like you have claimed the right number.

  11. Interest free loans used to matter when the banks paid interest.

  12. After getting a job five years ago that puts me on the road about 25% of the time, I finally realized that I could get a refund for the city income tax I pay — to the city where my office is located — for the time I spend out of town.
    (There’s no local income tax where
    my home is located.)
    I feel like a moran, but I got a nice chunk back this year, and also learned I can still get a refund retroactively for 08 and 07, which I’ll file for, of course.

  13. This is why I keep my state withholding to a minimum. I would rather write the state a check during tax season than wait around for a “refund”.

  14. You selfish fucks want “your” money back? What the fuck is wrong with you?

  15. I owed some money on back taxes from last year, i didn’t get around to paying it on time and accrued some debt because of lack of work. I was expecting money from my federal and state tax return this year. heres what happened: NYS took all the money from my federal return, took all the money from my state return AND cleaned out my bank account. They ended up taking over $1,000 more than i owed them. I asked the state when i would be receiving my check back for the difference and they told me that i’ll get my checks. I’m still waiting, i call them all the time and ask for the money they STOLE from me. one time i called up and the guy on the phone told me that “next time i should pay my taxes on time”. I’m still waiting for my checks and will not give this state a single cent until they give me back my money

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