Months after filing, thousands of Americans are still waiting for their tax refunds

Pandemic closed IRS offices, but employees are back and trying to clear backlog of paper returns


American taxpayers got an extra three months from the Internal Revenue Service to pay their taxes this year. But this act of bureaucratic largesse didn’t benefit many people who filed their returns long before the usual April 15 deadline. They are still awaiting refunds.

For the most part, the IRS stopped processing paper returns around March 30 because of the novel coronavirus. Some work was curtailed even earlier.

“Yes, some paper returns filed early in the season have not yet been processed,” said IRS spokesman Eric Smith. “We have been hearing this from a number of folks and very much understand that people are concerned. We are continuing to whittle away at our paper inventory.”

The coronavirus-related chaos that has marred this year’s tax season should give people who still mail paper tax returns additional incentive to switch to electronic filing.

One reader, waiting on a $10,000 refund, said his tax preparer doesn’t like e-filing returns.

“Big mistake,” he emailed. “Next time will hope my accountant of 40 years will do electronic filing or just retire. We filed a paper federal return on February 25. We are due a large refund. I got my Maryland state tax refund promptly (paper return) and can’t tell if my federal return got lost in the mail. Stupid me, I did not send it certified. Or is it still sitting in a trailer waiting to be reviewed? I’m not sure if the IRS ‘penalizes’ someone due a refund of several thousand dollars if the return just never got to them.”

The agency began a phased reopening on June 1, with employees working to dig out from under a backlog of mail. “Even now, we’re still not at 100 percent staffing,” Smith said.

As of the week ending July 4, the agency estimates that it had 7.8 million pieces of mail correspondence, which includes about 3.6 million unopened returns, Smith said.
  “These are not exact figures, and because both paper and electronic returns continue to come in, it’s very much a moving target,” he said. “So, we don’t yet have an estimated date of when the backlog will be completed.”

The IRS remains scaled back to comply with social distancing recommendations. Still, in the week ending July 10, the agency processed more than 4 million returns compared to the previous week.

At least if you’re getting a refund, your return gets priority treatment — whether your return arrived early in the year or during the typical spike around the filing deadline, which shifted to July 15 this year.

There are four key points to keep in mind if you’re worried about when your return will be processed, or whether the IRS received it.

— Even without receipt proof, it’s very likely your return is in the backlog. But if you’re unsure, don’t file a second tax return or bother calling the IRS.

“We completely sympathize with your concern that the IRS may not have received your return, especially when it comes to refunds,” said Smith. “Right now, sending in a follow-up letter or another copy of the return won’t help, and in fact it will usually slow things down. It could take even longer to get your refund.”

As of July 10, the average refund was $2,762.

— Check the status of your refund by using the “Where’s My Refund?” tool at or by calling 800-829-1954. But you don’t have to check multiple times a day. The refund portal is only updated once a day, usually overnight.

You should call the IRS if it has been more than 21 days since you e-filed your return or you get a message while using the “Where’s My Refund?” tool to contact the IRS. Although phone lines supported by customer service representatives are open, expect long waits because of limited staffing.

— If you’re due a refund, you’ll get the full amount. There’s no penalty assessed by the IRS even if the return is late. There is only a late-filing penalty if you owe.

— There is a decent bonus for your wait. If you filed your tax return before July 15, you’ll receive interest on your refund. The interest rate for the second quarter, which ended June 30, is 5 percent, compounded daily. After this date, the interest rate for the third quarter, ending Sept. 30, drops to 3 percent.

The interest accrues from April 15 to whenever the IRS issues your refund, and it could come in a separate check or direct deposit.

And, in case you’re wondering, yes, the interest is considered taxable income.

When will I get my tax refund? ‘We’re focused on the paper returns,’ the IRS says as it reopens offices

Andrew Keshner, June 2020, MarketWatch,

As tax season winds down, the Internal Revenue Service is gearing up its operations.

The federal tax collector’s plans and procedures have been upended this year, like countless other government agencies and companies contending with the coronavirus pandemic.

The IRS temporarily closed offices in March due to the COVID-19 public-health emergency and the filing deadline was pushed from April 15 to July 15. On top of that, lawmakers tasked the agency with distributing millions of stimulus checks, beginning in April. The IRS started reopening its offices last month after 90% of its facilities were closed at the peak of the pandemic.

The IRS has processed 130.5 million returns by July 3, down 9.5% from the same point last year when it had already processed 144.3 million, according to the most recent data. It’s issued 95.2 million refunds so far, which is 9.6% fewer issued refunds than the same point last year.

As of late June, the IRS was also working its way through 12.3 million pieces of correspondence, IRS Commissioner Charles Rettig told senators at a June 30 Finance Committee hearing. Paper tax returns are the top priority in the mountain of documents, he noted.

“We’re focused on the paper returns because many of those also obviously will have refunds,” Rettig said, referring to the tax credit for low- and moderate-income families.

The IRS is processing paper returns in the order it receives them.

When it comes to on-site office returns, Rettig said the IRS has focused first on staffing up its capacity to issue refunds and handle customer service calls. “We’re trying to ramp up as quickly as we can,” he said.

By this week, all of the IRS processing facilities and call centers were scheduled to be open, Rettig said last month, “understanding that ‘open’ is a relative term for socially distanced working, different schedules, working different shifts, having people spread out.”

The IRS did not immediately respond to a request for comment on the latest working status for its facilities.

So when will I get my refund?

Anxious taxpayers don’t need to raise their stress level by constantly refreshing the page. The refund tracker gets updated once a day, and it’s usually overnight, the IRS says. (Around 98% of all returns with refunds are processed and paid in 21 days, Rettig noted during his testimony.)

The average refund, a reimbursement for overpayment of income tax, is $2,762. That’s basically unchanged from last year’s average amount — and worth more than two $1,200 stimulus checks. In theory, they should start to arrive around the same the additional $600 in weekly unemployment benefits expire at the end of July.

98% of all refunds should be processed and paid in 21 days, but there may be delays given the extraordinary set of circumstances related to the pandemic. —

If a taxpayer has already submitted their tax return, they can track the status of their refund through the IRS’ “Where’s My Refund?” portal. Users need to supply their Social Security or individual taxpayer identification number. They must also provide their filing status and exact refund amount.

If you have already submitted your tax return and expect money, track the refund status through the IRS site, experts told MarketWatch.

Rafael Alvarez, CEO and founder, of ATAX, a national tax-preparation company, said if you haven’t yet filed your return, do so electronically and supply bank-account information for a direct-deposit receipt.

A taxpayer who doesn’t supply bank-account information will get a paper check for their refund, which could prolong the wait by a week, Alvarez said.

If you already submitted a return without bank account information, you can give updated account information to the IRS. However, Alvarez said that may be a tough task for a backlogged agency that’s wary of enabling scammers who could make off with someone else’s refund money.

“It can be modified by talking to IRS agents, but you need to explain the reason why you are doing this,” Alvarez said.

The IRS was never an agency designed for downtime given its time-sensitive work, according to Robert Kerr, executive vice president of the National Association of Enrolled Agents, a trade organization for tax professionals. That’s especially true during filing season, he added.

He credits the IRS for doing its best under extraordinary circumstances, but says the sheer number of returns mean a small percentage of snafus and delays can equate to big numbers.

For example, the IRS has fraud and error filters to screen out potentially questionable returns. Some mistakenly flagged returns are taking a long time to fix and send refunds, according to the National Taxpayer Advocate report.

“When these returns bounce, they bounce to somebody’s desk,” Kerr said.

Expecting a tax refund? Be prepared to wait.

The IRS is facing a paper return pile-up.

Taxpayers may be in for a long wait for refunds, as an estimated 4.7 million returns were backlogged at the IRS by mid-May because of the agency’s employee evacuation for the coronavirus pandemic, according to a National Taxpayer Advocate report released Monday.

“Although the IRS is reopening some of its core operations, it is not clear when it can open and log all the returns sitting in mail facilities,” the report said.

While more than 90 percent of individual tax returns filed annually to the IRS are sent in electronically, another approximately 10 million paper returns still arrive by mail.

The paper return pile-up — which the taxpayer advocate's office computed through May 16 — started happening after the IRS in late March sent tens of thousands of employees home to limit the pandemic’s spread. Processing such documents can’t be done remotely, so IRS workers who’ve been recalled throughout June to resume more normal duties have just begun to address the paper return inventory.

The holdup in processing paper returns comes amidst an unusual filing season in which the IRS delayed the tax return deadline by three months to July 15 due to the pandemic. The agency also delayed numerous other taxpayer deadlines in the process, numbering more than 300 in total, according to the report.

Among other disruptions, it also said the IRS has had trouble processing applications for business taxpayers that have filed claims for the pandemic-related tax credit they can get for keeping employees on payroll. IRS phone lines and other taxpayer assistance processes like refund corrections have also been unusually hampered this year, in which much of the agency's focus has shifted to distributing some 160 million economic stimulus payments.

The report was the first filed to Congress by Erin Collins, who took over as National Taxpayer Advocate earlier this year.

IRS Commissioner Chuck Rettig is scheduled to testify on this year’s tax filing season Tuesday in front of the Senate Finance Committee. Collins’s report said she’d submit a more comprehensive follow-up when the filing season is more complete.

Last Tax Season Was a Mess. Now’s Time to Prepare for This One.

If you didn’t change the tax withholding in your paycheck, you still have time to avoid another unpleasant surprise — or even a fine.


The first tax season under the Republican-sponsored overhaul brought an odd combination of pleasant and unpleasant surprises: lower tax burdens, but also lower refunds — and, for some, an unexpected bill.

Anyone who didn’t take a proactive approach after getting a big tax bill last time around could end up in that situation again, only worse: That filer is more likely to have to pay a penalty.

For 2019, taxpayers who didn’t generally withhold at least 90 percent of their liability from their paychecks may be required to pay a fine. That threshold is back up from 80 percent, where it was set last year as everyone adjusted to the new rules.

If you didn’t change your withholding by filling out a new W-4 form with your employer, there are still steps you can take to try to avoid the extra charge.

If a withholding calculator — like the one on the Internal Revenue Service’s website — shows you’re significantly short, you have options. There may be time to have an extra amount withheld from your final paycheck to get you over the threshold, although that will require filling out a W-4 now and another later to reverse that change. Or you can make what’s called an estimated tax payment directly to the I.R.S.

You’ll also want to think about how to handle the rest of the tax balance.

“You can start planning for that now by setting aside money in savings accounts or planning ahead for an installment agreement with the I.R.S. so you can pay over a period of time,” said Nathan Rigney, lead tax research analyst at H&R Block’s Tax Institute.

Most households did pay a bit less because of the overhaul: Individuals’ total tax liability dropped nearly 5.8 percent, or $70 billion, according to I.R.S. data on tax returns filed through July.

But it didn’t feel that way for some taxpayers. The number of refunds issued hardly budged — they were down 0.3 percent — but refunds for many were smaller. Refunds for those who earned between $100,000 and $250,000, for example, dropped by about 11 percent, according to the I.R.S.

Many people were surprised to learn that they owed the government money even if their situation hadn’t changed.

Why? After the law went into effect, the government told employers how to tweak the amount of tax withheld from workers’ paychecks. It mostly suggested decreases, and, in some cases, filers didn’t have enough withheld. (Over all, however, the average refund amount declined only 1.3 percent last year.)

“It’s safe to say taxpayers were caught off guard by the impact of those changes,” said Brian Ellenbecker, a certified financial planner and senior vice president at Baird, a financial services firm in Milwaukee.

The new law simplified the tax lives of many households because it doubled the standard deduction. About 90 percent of taxpayers used the standard deduction on their 2018 tax return, the I.R.S. said, up sharply from 70 percent in 2017.

But that doesn’t mean there aren’t some simple strategies to consider to lower your tax bill, and there’s still time left in the year to put them to work.

For 2019, the standard deductions are up a little, to $24,400 for married couples filing jointly and $12,200 for single filers. For most people, that will do nicely.

But if your itemized deductions — including mortgage interest, state and local taxes (known as SALT, now capped at $10,000), and charitable contributions — are just shy of topping the standard amount, you might think about bunching certain deductions into alternating years.

Consider a family that gives $5,000 to charity at the end of every year. Instead of making that donation this month, it could do so in January, then make another as usual next December. The family would then have $10,000 in itemized deductions for the 2020 tax year.

The same logic can be applied to certain medical expenses. In 2019, you can deduct the portion of your expenses that exceed 10 percent of your adjusted gross income (if you itemize). So if you plan to have elective surgery, for example, it may make sense to consider the timing.

“Dental bills,” said Larry Pon, a certified public accountant in Redwood City, Calif. “Those are big ones.”

There’s a way for some older taxpayers to get a break using charitable contributions even if they don’t itemize. Those over 70½ can make what’s known as qualified charitable distributions — a direct donation from an individual retirement account to an eligible charity. The benefits are twofold: Donations, up to $100,000 annually, are not included in their taxable income but count toward the prescribed amount they must take out each year (also known as a required minimum distribution).

“This opportunity was a good deal before tax reform, and now it can be even more relevant and useful,” said Joe Musumeci, a certified public accountant with Rowles & Company in Baltimore.

There aren’t many pay periods left, but workers can reduce their taxable income by contributing more to their employer-sponsored retirement account, such as a 401(k), before the end of the year. Contribution limits to such accounts are $19,000 in 2019, or $25,000 if you’re 50 or older.

And there’s still plenty of time to contribute to I.R.A.s. Contributions to traditional I.R.A.s may also provide a tax deduction, as long as you meet the income limits and other rules. For 2019, contributions to traditional and Roth I.R.A.s can be made until the April 15, 2020, tax deadline. (Just be sure to tell your provider that the contribution is for the 2019 tax year.)

The same goes for self-employed people contributing to a SEP I.R.A., which allows contributions up to 25 percent of compensation up to $56,000 for 2019, said Lisa Greene-Lewis, a certified public accountant at TurboTax.

If you plan on contributing to a 529 college savings plan, you probably want to do so before Dec. 31.

That’s the deadline to qualify for many of the state tax breaks offered by more than 30 of these plans. (Some states’ deadlines stretch into the new year.) Contributions are made with money that has already been taxed, and it’s withdrawn free of capital gains and income taxes as long as it pays for qualified expenses.

It won’t exactly cut your tax bill, but it would be a missed opportunity to not use money you’ve put into a health care flexible spending account or a dependent care account. Be sure to check your balances and put that pretax money to use.

Plan rules vary, but some employers require you to spend F.S.A. money by Dec. 31 or lose it. Others provide more flexible options: a grace period (often until about March 15) to incur any new expenses, or the option to carry $500 into the new year.

Dependent care accounts aren’t as flexible; the money has to be spent by Dec. 31. Still have a balance? Day camps during your child’s holiday break count — just be sure to get a receipt.

Taxpayers have been expected to report and pay tax on any gains from the trading of cryptocurrencies, but this year the I.R.S. is planning a direct approach with a new question on your 1040 form: “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”

If you did, it could be a taxable event. The rules are complicated, so be sure to check out the latest guidance on the I.R.S. site, which includes a list of frequently asked questions.

Finally, remember to check your withholding — yes, again — early next year. The I.R.S.’s Tax Withholding Estimator will be updated again soon, and that’ll be the time to make sure you’re on track for the 2020 tax year.

If you find that you’re not withholding enough, submit a new W-4. The I.R.S. released a new version of the form on Thursday.

Tax refund fraud: IRS crackdown ensnares legitimate taxpayers

Janna Herron  USA TODAY
Published 12:34 PM EDT Mar 18, 2019

Kim Henry thought she had a simple tax return this year.

The 59-year-old resident of Fort Wayne, Indiana, was expecting a small refund – just $327. But after submitting her return electronically on the first tax filing day in January, she got a letter from the IRS about two weeks later asking her to verify her identity. She could do it online, over the phone or in person.

When she called, the IRS representative asked a series of questions to confirm her identity: address, last tax filing, date and place of birth, mother’s maiden name, father’s name and the source of her income in 2012.

She answered all but one correctly. She couldn’t remember the administrator of investment funds that sent her a 1099 form in 2012.

That single memory lapse was enough to upend everything. 

“She told me I had failed the entire identity test, and I couldn’t get my refund unless I went to an IRS local office,” says Henry, who doesn’t have a car.

Fraud detection ramps up

Henry is not alone in her frustration.

Since 2015, when tax identity theft hit near-crisis levels, the IRS has ramped up its efforts with state revenue departments, national tax professional groups and software preparation companies to detect fishy returns and cut down on the number of stolen refunds.

The efforts, so far, have been successful. The volume of victims reporting tax identity theft fell 19 percent over the first 10 months of 2018, compared with the same stretch in 2017, and 72 percent from the same period in 2015, according to the latest IRS figures.

Still, too many legitimate taxpayers are getting caught up in the flagging process, according to Nina Olson, who heads the Office of the Taxpayer Advocate, a government office dedicated to helping taxpayers solve their problems with the IRS.

Last year, almost two-thirds of taxpayers caught in the IRS identity fraud filters were  legitimate filers. The false-positive rate should be closer to 50 percent, Olson says, based on conversations she’s had with industry players and financial services companies.

How to verify yourself

It’s not always clear what triggers an ID theft concern on a return.

“There’s just something in the return that make the IRS think it’s not the taxpayer,” says Olson. “Possibly another return with the same Social Security number, so the IRS has to figure out which one is the real taxpayer.”

What you must do next depends on which of the four ID theft letters you received. Some cases can be resolved online or over the phone, while others require an in-person visit to a Taxpayer Assistance Center. The letter should outline what materials you need, which typically include the letter itself, last year’s return, this year’s return and supporting documents such as W-2s and 1099s.

“They may ask knowledge-based questions ... such as previous addresses, or credit cards that you have,” says Kathy Pickering, the executive director of H&R Block’s Tax Institute. “If you really are the authentic taxpayer, chances are you will know those answers.”

But sometimes, you may not remember, such as in Henry’s case.

“I’ve heard people say they asked about a car loan from years ago,” Olson says. “Any one of those questions can screw you up.”

Refund delay

Even if you sail through the verification process, it may take up to nine weeks to get your refund, according to the letter Henry received.

“What they are withholding from me is something I already earned,” she says.

That delay could be especially difficult for working class and poor taxpayers who claim the Earned Income Tax Credit – as Henry did – or the Additional Child Tax Credit,  both of which receive extra scrutiny for ID theft because they are so valuable.

In fact, even for early filers, refunds from returns that claim those credits can’t be issued until mid-February by law, so the IRS has extra time to run them through its detection process.

“They are targeting lower-income people and putting the burden on them to get a refund,” says Henry, who has yet to resolve her case. “Picking on someone who has a $327 refund doesn’t seem very profitable to me.”

IRS identity theft letters

If your return triggers an ID verification process, you'll know when you receive one of four letters from the IRS.

Letter 5747C: You can only resolve the case by making an in-person appointment at a Taxpayer Assistance Center (TAC). You must bring the documents listed in the letter.

Letter 4883C: You must call to resolve this case. When you call, you should have the letter, a prior-year tax return, the return for the year that the letter is for, and all supporting documents for those returns.

Letter 5447C: You can call or write to resolve this case. If you call, you should have the letter, a prior-year tax return, your most recent return, and all supporting documents. If you mail your response, include copies of all requested information.

Letter 5071C: You can resolve online or over the phone. If you call, you should have the letter, last year’s tax return, this year’s return and all supporting documents.

New, confusing W-4 form is coming for 2020: What to do now to get bigger tax refund

, Detroit Free Press as in USA Today

Published 5:00 a.m. ET June 20, 2019

If you grumbled about the size of your tax refund or even writing a huge check for your federal income taxes in April, don't expect things to change without tinkering with a W-4. 

And if you think the current W-4 form is a headache, get ready for a migraine with a new form for 2020 and beyond.

Many people still should take time now to withhold more money out of their paychecks to cover their 2019 federal income taxes. Setting aside more money now through the rest of the year can trigger a bigger refund when you file your 2019 return – or you might avoid owing money to the federal government. 

If you're paid every two weeks, you could have a dozen or so paychecks ahead in 2019. It's enough to make a good dent.

Remember, not everyone was thrilled back in April

While many did see lower tax bills as part of the Trump tax cuts, some had to hand over money for federal income taxes in April because they had begun seeing slightly more money in their paychecks last year. 

"If they owed money and they were a little surprised by that, they might want to have their withholding adjusted with their employer," said Sandra Shecter, certified public accountant and principal for Rehmann in Troy. 

Throughout 2018, the Internal Revenue Service and others encouraged taxpayers to do a "Paycheck Checkup" to see if their withholding amount was on track. Many people didn't do that – and more likely than not, they're still dragging their feet in 2019.

How to fix that W-4 

The IRS calculator for a Paycheck Checkup can help you take a detailed look at your tax situation and better adjust your withholding amount when you file another W-4 form. You would need your most recent pay stubs, as well as a copy of your most recent tax return. 

And you'd need some time to fill out the online worksheet. 

Want a short-hand trick? Pull out your own regular calculator. 

If you owed $2,400 in April for your 2018 federal income taxes, for example, you might have an extra $200 a paycheck withheld beginning in late June if you're paid every two weeks. Figure out the number of paychecks you have left in the year and then divide the that number into what you owed.

See Line 6 of the current W-4 form and plug in a number for the "additional amount, if any, you want withheld from each paycheck." 

A little simple division may not be as precise as the online calculator but it's far better than throwing up your hands and doing nothing. 

Are you in one of these vulnerable groups?

Some groups are particularly vulnerable to not having enough money withheld now after the tax changes. They include households with two-income families, high incomes, homeowners who live in high property tax states, families who claim the child tax credit and those who lost deductions under the Trump tax reform, such as tax breaks related to unreimbursed employee expenses. 

For 2018, the IRS waived any penalties related to withholding too little in taxes during the year. In 2019, we can expect those penalties to return.

Shecter noted that some taxpayers will want to pay attention to the rules that could help them avoid penalties. Normally, no penalty applies if tax payments during the year meet one of the following tests: 

  • The person’s tax payments were at least 90% of the tax liability for 2019 
  • Or the person’s tax payments were at least 100% of the prior year’s tax liability or 2018. However, the 100% threshold is increased to 110% if a taxpayer’s adjusted gross income is more than $150,000 or $75,000 if married and filing a separate return. 

Now, of course, is as good of a time as any to reevaluate how much you're having withheld from each check. 

New design is supposed to simplify the W-4

Later this year, we can expect to hear more about the ongoing effort by the IRS to redesign form W-4 for determining how much money your employer should withhold for federal income taxes out of your paycheck. 

The "near-final draft" is expected to be released in July, according to the IRS, while the final version is expected to be released in November in time for 2020.

It's a vast understatement to say that no one, really, will ever use the word "simple" when referring to the revised, five-step W-4 form.

"This essentially is a mini-tax return," said Melanie Lauridsen, senior manager for tax policy and advocacy at the American Institute of CPAs.

The new form attempts to take into account the significant changes that were part of the Tax Cuts and Jobs Act of 2017.

On the plus side, the new form offers a line to reflect how many children you have in your family that are under the age 17 and how many dependents may be older. You'd see Step 3 on the new W-4 to take those ages into account. The age breakdown is important because the dollar amount for the actual tax credits related to children and dependents will vary based on age under the Trump tax revisions.

"In some respects, they've simplified it," Shecter said. 

A chance to disclose more, but should you?

Where things could get really tricky, though, is with Step 4 on the new W-4 form.

If you really want to be exact on the amount withheld, there's a section that offers optional adjustments. 

The optional adjustments can reflect other income, maybe from retirement income or dividends. 

The question, of course, becomes do you want your employer to know all your financial business?

"You wouldn't want your employer to know I've got millions in my bank account," said Lauridsen, at the American Institute of CPAs.

So you might not want to disclose on a W-4 that you've got $25,000 or more in "other income" on Line 4a. 

And if you're going beyond claiming the standard deduction, well, you'd be supplying more detailed information on Line 4b for deductions. That would include itemized deductions, such as mortgage interest, charitable contributions, as well as limited deductions for state and local income taxes and medical expenses. And that would reflect other deductions, such as for student loan interest. 

"I guess people will be hiring CPAs to fill out their W-4s," said George W. Smith, a certified public accountant with his own firm in Southfield.

"Good luck to the non-tax expert trying to fill this out," Smith said.

He and others are particularly focused on the format for calculating other income and deductions. How do you correctly project what your deductions – or extra income – will be in the year ahead? 

"In fairness to them, the IRS is trying its hardest to prevent the under withholding of federal income taxes by taxpayers due to the new tax laws in place," Smith said. 

Strategies for filling out the new W-4          

To be sure, there are some shortcuts that you could take with the new W-4.

Employees who have already submitted a form W-4 would not be required to submit a new one simply because of the redesign. If you're taking a new job at a new employer in 2020, though, you're going to have to fill out one of the new W-4 forms. 

To make things really simple, it would be possible to fill out only Step 1 on the new W-4 form and sign it. If that's done, your withholding would only be based on the standard deduction that applies to your filing status and the appropriate tax rates. The risk is that you could owe more than you'd expect once you file your tax return.  

Some who want to increase their withholding and still take a shortcut could just fill out Line 4c to enter "any additional amount you want withheld each pay period." 

Essentially, the new methodology of withholding is meant to account for taxable events or situations such as dual income spouses, interest income, dividends, capital gains, any taxable retirement income.

"The changes attempt to determine what the taxpayer’s actual taxable income and tax may be for the year and withhold accordingly," said James P. O’Rilley, CPA and tax director for Doeren Mayhew in Troy. 

"This is especially important to avoid penalties for underpayment of tax."

Employers had to use new withholding tables in early 2018 in order to get some of the benefits of tax cuts into the hands of the public throughout the year.

But many taxpayers ended up wondering what had happened to their typical refund. 

"In reality, they received a portion with each paycheck," O'Rilley said. "It tends to not feel the same when you get an extra $100 to $200 per month versus a $1,200 to $2,400 refund in April," he said.

Or worse yet, some owed money for the first time in years.

New W-4 Form Aims to Prevent Tax Refund Surprises, IRS Says

Upset with a smaller-than-anticipated tax refund this year? The IRS has a remedy for that.

The Internal Revenue Service is redesigning the key tax withholding form, the W-4, which tells employers how much to take out of your paycheck. The form is critical for filers to calculating withholding that wasn’t updated to reflect the new facets of the 2017 tax overhaul.

“The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system,” according to a Treasury Department fact sheet. “While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.”

In the most recent filing season, some taxpayers expressed concerns that their refunds were much smaller than in past years. The old W-4, which hadn’t been updated to reflect all the changes to the law, is responsible for some of the surprises.

The new form, which was released as a draft on Friday, will be finalized in about a month and becomes effective on Jan. 1, 2020, a Treasury Department official said in a call with reporters. That means the forms won’t be available to help calculate withholding for the 2019 tax year.

The IRS released a draft of a revised W-4 last June but decided to rework it after concerns about the amount of information required if a worker had a second job, a Treasury official said.

The new form will be given to workers who start new jobs starting next year. Employees who do not switch employers aren’t required to fill out a new form, but can if they choose.

The new W-4 will reflect changes made in the 2017 tax cut law, which raised the standard deduction, lowered tax rates and altered available credits and deductions for taxpayers. The law also got rid of personal exemptions, an amount of money taxpayers could deduct for themselves and dependents.

The form will require taxpayers to fill out whether household members hold multiple jobs, dollar amounts for other income not automatically subject to withholding, such as pay from freelance work and anticipated tax credits and deductions. The form also allows for taxpayers to instruct their employer to take out additional money each pay period.

Employers then use that information to calculate how much tax to keep out of their workers’ paychecks and send to the IRS throughout the year. Employees who have more withheld than what they owe get a refund when they file their tax return the following year. Those who don’t have enough taken out end up owing the IRS the difference during tax season.

Confusion over whether the form would be revised before the first filing season under the new tax law kept many taxpayers from checking and adjusting their withholding rates, tax professionals have said.

The IRS is encouraging all workers to check their withholding using an online calculator so they aren’t surprised next year with their refund size.

Taxpayers should increase their withholding if they have multiple jobs or if they and their spouse are both employed, according to the Treasury fact sheet. People can reduce their withholding if they are eligible for tax credits and deductions, such as the child tax credit, the sheet said.

This year, the average refund was about 1.7% less than last year. In total, the IRS sent out about $7.5 billion less in refunds this year, according to agency data from earlier this month.

W-4s can be changed throughout the year and re-submitted to employers to reflect unexpected changes in income, or life events such as the birth of a child or a marriage.

Could Eduardo Saverin be barred from the U.S. for life?

The growing number of wealthy Americans giving up their U.S. citizenship to avoid taxes have been given a public face by the case of Facebook co-founder Eduardo Saverin, a Brazilian-born Singapore resident who gave up his U.S. passport shortly before the company’s IPO, which could be worth up to $11.8 billion.  Saverin won’t be avoiding ...


The growing number of wealthy Americans giving up their U.S. citizenship to avoid taxes have been given a public face by the case of Facebook co-founder Eduardo Saverin, a Brazilian-born Singapore resident who gave up his U.S. passport shortly before the company’s IPO, which could be worth up to $11.8 billion. 

Saverin won’t be avoiding U.S. taxes entirely. Americans who renounce their citizenship, according to Bloomberg, "may incur an “exit tax” on unrealized capital gains if their assets exceed $2 million or their average annual U.S. tax bill is more than $151,000 during the past five years." In Saverin’s case, that penalty could turn out to be as much as $365 million. Attorney Eugene Chow explains in more detail how this works here.

There’s also the issue of whether Saverin will be able to return to the United States. As Talking Points Memo’s Josh Marshall pointed out yesterday, U.S. law specifies that "any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States" can be denied a visa to return to the country. 

I e-mailed past Explainer helper Laura Danielson, an attorney with the firm of Fredrickson & Byron who teaches immigration law at the University of Minnesota Law School, to ask about this law. She pointed out that in these cases, the burden of proof is on the government to show that the person is renouncing citizenship for only tax reasons. "As a practical matter that is a very difficult burden as it requires proving the person’s intent," she wrote. 

Of course, the timing of Saverin’s decision certainly makes it seem like he was trying to avoid U.S. taxes on his Facebook windfall. But can the government really prove that he didn’t, say, object to the war in Afghanistan or want to get back to his Brazilian roots?

Senators Chuck Schumer and Bob Casey are trying to erase that ambiguity with a new bill that would make it easier to keep guys like Saverin out of the country for good. Here’s a summary from Schumer’s office:

"Under the proposal, any expatriate with either a net worth of $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax avoidance purposes. The individual will then have an opportunity to demonstrate otherwise to the IRS by meeting specific IRS requirements. If the individual has a legitimate reason for renouncing his or her citizenship, no penalties will apply. But if the IRS finds that an individual gave up their passport for substantial tax purposes, then it will prospectively impose a tax on the individual’s future investment gains, no matter where he or she resides.[…]

So long as the individual avoids these taxes, they would be inadmissible to the United States forever. 

This would seem to reverse the burden of proof, making the individual responsible for proving they have a "legitimate" reason to renounce.

I don’t have an awful lot of sympathy for Saverin, who seems to have not quite thought through what he was getting himself into, and I’m with David Frum on the tortured reasoning of those who are seeking to turn him into some kind of libertarian folk hero for abandoning the country where he grew up and made his fortune. But the new law seems a little problematic.

Citizens should certainly be discouraged from renouncing their citizenship and an exit penalty seems reasonable. Having a free society requires that if citizens don’t want to be citizens anymore, they have the right to leave. Continuing to penalize someone after they’ve left because we don’t approve of their reasons doesn’t seem particularly democratic.

Government shutdown stymied frozen tax refunds, tied up IRS phone lines, report shows

Janna Herron  USA TODAY
Published 9:28 PM EST Feb 12, 2019

The longest-ever federal shutdown created an even tougher environment at the Internal Revenue Service, hampering an agency already understaffed and underfunded, according to a new report from Nina Olson, the head of the Taypayer Advocate Service.

Taxpayers couldn’t get frozen refunds, present hardship cases while facing fines, or resolve audits of past tax returns. Only a handful of calls from taxpayers were answered during the 35-day lapse in funding, and the rate didn’t substantially improve during the first week of the filing season when the government reopened.

The shutdown aside, the agency was still dealing with a backlog of unfinished items from the previous tax-filing season and was behind on integrating the new tax law changes.

“The five weeks could have not have come at a worse time for the IRS – facing its first filing season implementing a massive new tax law, with a completely restructured form,” Olson wrote.

The Taxpayer Advocate Service (TAS) is a government office that helps taxpayers solve their problems with the IRS.

The report itself – typically delivered to Congress in December – was also delayed because of the shutdown. In a statement, the IRS said its leadership plans to review the details of this report.

Shutdown backlog

During the first part of the shutdown, no IRS employees could answer telephone lines, issue refunds, release liens and levies, create installment agreements or review pending IRS actions. Under a new IRS plan on Jan. 22, some IRS employees could answer phone lines, issue refunds and create installment agreements.

By the time the shutdown ended, the IRS faced the following:

  • More than 5 million pieces of mail that hadn’t been batched for processing.
  • 80,000 unaddressed responses to Earned Income Tax Credit (EITC) audits from the previous tax season, some of which included frozen tax refunds.
  • 87,000 amended returns that still needed to be processed.

The agency also couldn’t keep up with the 170,000 orders for forms W-2 and W-3 that employers are required to distribute to their workers by the end of January. The agency instead recommended that employers consider filing an extension, meaning that some taxpayers could get these forms late.

Telephone chaos

IRS customer assistance over the phone was also disrupted and was not near full capacity one week after the shutdown ended, also the first week of the filing season.

Just under half of the calls to the accounts management line and 38 percent to the automated collection system were answered in that week. Only one out of every 15 calls to the installment agreement and balance due line were answered, and only after an almost 81-minute average wait time.

“This means for that week 93.3 percent of the taxpayers calling to make payment arrangements were unable to speak to a live assistor,” the report said.

In a statement, the IRS noted that it had "successfully reopened operations" and is experiencing "a good start to the 2019 filing season."

"We are continuing to assess the impact of the shutdown on our various operations across the agency and remain proud of the many IRS employees who have risen to the resulting challenges," the statement said.

Hardship cases

Taxpayers who desperately needed their frozen tax refunds or required relief from an IRS penalty had nowhere to turn during the shutdown, the report found. No IRS employee or TAS employee – which advocate for taxpayers – were authorized to work to assist a taxpayer experiencing a hardship because of the IRS.

The IRS chief counsel said that these functions didn’t meet the requirements for the “safety of life” exception under the Anti-Deficiency Act.

“Neither of these exceptions would allow personnel to be excepted to issue a refund or release a levy in order to allow the taxpayer to obtain access to funds to receive a life-saving operation, for example,” the report stated. “Nor could the IRS use resources to release a levy where it is depriving the taxpayer of funds to pay for basic living expenses, even if the levy could leave the taxpayer homeless.”

Old technology

Even without the shutdown, the IRS was struggling. The report notes that the agency is using information technology systems that are the oldest in the federal government. “For the last 25 years the IRS has tried – and been unable – to replace them,” the report said. Taxpayer information is stored in 60 different systems, making it impossible for the agency to have a “360-degree view of taxpayer data.”

In its statement, the IRS said that modernizing its IT infrastructure remains a top priority for the agency and says it's "critical to the future of our nation’s tax system."

"We will continue our efforts to upgrade this infrastructure, so that we have the technology needed to run day-to-day operations, enhance the taxpayer experience throughout the agency, monitor and continually improve cybersecurity and continue safeguarding taxpayer data," the agency statement said.

New tax law changes

The IRS was also under stress to roll out new tax law changes that required replacing three tax returns forms – the 1040, 1040A and 1040EZ – with one new form 1040, along with creating six new schedules for certain credits and deductions. The IRS had to publish new instructions, notices and FAQs to help the public navigate the new tax code.

Because of this work, the IRS did not provide the electronic filing requirements to tax software companies like TurboTax and H&R Block until September, much later than in previous years.

“As we document in these pages, the IRS is wrestling with its workload," the report states. "With the best of intentions – namely, trying to do its job – it is making strategic decisions that ultimately burden taxpayers (and) increase its own rework. And it is experiencing a ‘cycle of frustration’ as it tries to soldier on with its important work in the midst of shutdowns and funding stops and starts.”


Tax refunds issued so far are smaller than last year, IRS data show



Taxpayers got a double dose of bad news Friday when the Internal Revenue Service released figures on the first week of filing season. Not only has the agency processed fewer returns compared with the same time period last year as the IRS scrambles to catch up after closing during the partial government shutdown, but Americans also are seeing smaller refunds.

The IRS is also behind schedule following the record-long government shutdown that ended Jan. 25. While it received 12 percent fewer returns in the first week than in the same period last year, the agency has processed 26 percent fewer returns.

Refund amounts can vary a great deal. Last year, the average refund in any given week during filing season could range from $2,000 to just over $3,000. But for many taxpayers, and most working-class filers, the refund is the largest single cash infusion they'll get during the year.

Many taxpayers are taking to Twitter to complain about their smaller refunds, with some blaming the 2017 Tax Cuts and Jobs Act.

Few changed withholding amount

Of course, a smaller refund doesn't always mean someone paid more taxes. Early last year, businesses were encouraged to adjust how much tax they took out of employee paychecks to reflect the lower tax rates. The IRS also encouraged people to do a "paycheck checkup," saying that "some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks."

The trouble is, few Americans seem to have done that.

According to payroll processing firm ADP, a only a small fraction of workers bothered to change their withholding.

He added, "I think taxpayers generally will try to avoid thinking about taxes, even after a major overhaul."