Your Taxes During a Government Shutdown—What to Know
A government shutdown doesn't mean you don't still owe taxes
Most national parks have shuttered their gates for the time being. Immigration courts are closed. The Federal Housing Administration and the Small Business Administration are idling, all as a result of the Dec. 22, 2018 government shutdown as Congress and President Trump argue over the necessity and cost of building a border wall.
But the Internal Revenue Service is still up and running…sort of.
The IRS on Monday, Jan. 7, 2019 that it will begin processing 2018 tax returns on Jan. 28, pretty much at the same time it does every year. Employers still have until the end of January to and other informational documents.
Who’s Working…and Who’s Not
Depending on who you listen to, at least a fair number of IRS employees are still at their desks now that 2019 has dawned. Liberty Tax puts the number at about 35,000 exempt workers, or 43.5 percent of all IRS employees. But ABC, CBS, and the Journal of Accountancy all say, "Not so!" They put the number at closer to 10,000 workers, or 12.5 percent.
ABC does admit, however, that some additional workers might be called back when filing season officially begins. And CBS also reported before the Jan. 7 IRS announcement that the IRS would not be issuing refunds during the shutdown, which turns out not to be the case.
It’s the Law
There’s a precedent for the CBS statement that no tax refunds will be issued until the government is back up and running. The Office of Management and Budget (OMB) took the position during the threat of a 2011 shutdown that the IRS could not pay refunds during a budgetary lapse.
But the OMB reversed that opinion in 2019, agreeing with the IRS that 31 U.S. Code Section 1324 does indeed provide for “payment of all tax refunds through a permanent, indefinite appropriation.”
Federal law provides that the IRS must be manned during the shutdown by exempt employees whose roles “protect human life and property.” And, of course, tax revenues are federal property, so the show goes on.
The IRS must remain open during the shutdown, although it will apparently be short-staffed. And it must process all tax returns submitted on paper that include payments.
So Where’s Your Refund?
There are a few things the agency can’t do during the shutdown, but issuing tax refunds isn’t one of them. You'll receive any tax refund you're due from your 2018 return, according to IRS Commissioner Chuck Rettig, who stated, “We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown.”
What Does All This Mean to You?
The IRS expects to release an updated FY2019 Lapsed Appropriations Contingency Plan sometime during the second week of January 2019. The plan should provide further details so we all know what to expect going forward. But here’s the takeaway so far so you can plan accordingly.
- You don’t have to wait to file your 2018 tax return. Go ahead and prepare and send in your return as soon as you have all required documentation on hand, such as W-2s and 1099s. If you owe the IRS money, send a check. The IRS will begin processing paper returns with payments and e-filed returns on Jan. 28, and all other deadlines are expected to remain intact. As always, the sooner your tax return is in line with other received returns awaiting processing, the sooner you’ll receive your refund if you’re due one. If you don’t owe the IRS money, however, you might not want to submit a paper return. The law says that processing these will have to wait until after the shutdown, so this might be a good year to go electronic.
- The filing deadline for 2018 returns is still April 15, 2019—at least for most taxpayers. This is Patriot’s Day in Maine and Massachusetts, so your deadline is April 17 if you live in one of these states, allowing for Emancipation Day, a holiday in the District of Columbia, on April 16.
- Do not think you can delay filing your tax return or paying a tax debt because of the shutdown. You’re still legally obligated to file and pay on time, even when Congress is squabbling. This includes the made by self-employed individuals that are due on Jan. 15. The IRS website specifically states that you should “file and pay taxes as normal.”
Do NOT adjust withholding from your paychecks so you have more take-home pay to make up for your refund being potentially delayed. Refunds are not expected to be withheld, and the shutdown doesn’t affect tax law or what you owe. You’ll still owe the same amount when the government is up and running again, and you could face making a nasty, lump sum payment to the IRS when you file your 2019 return if you don’t have enough withheld from your paychecks in the interim.
- You can hold off on submitting any amended tax returns (Form 1040X). The IRS isn’t permitted to deal with these until after the shutdown ends.
- You’ll have a reprieve if you're subject to an audit. The IRS can’t audit taxpayers during the shutdown, either, but this doesn’t mean it won’t train its binoculars on you later. The shutdown is bound to end eventually.
- Don’t bother calling the IRS. That automated line you can normally call for help will just tell you that “live telephone assistance is not available at this time” and that “normal operations will return as soon as possible.” It will point you to the IRS website and its online tools, which are still up and accessible, at least for now.
The Effect of the Tax Cuts and Jobs Act
The IRS might have said that refunds will be paid out regardless of the shutdown, but this doesn’t necessarily mean that processing of returns won’t be a little slower than usual this year.
Remember, manpower has been reduced. Only exempt employees are working—this at a time when the filing season is expected to be snarled and slow to begin with thanks to last year's Tax Cuts and Jobs Act, the largest and most significant tax overhaul to take place in over 30 years.
The bottom line? Be patient if you’re expecting money from the IRS, but pay up immediately if you owe.