Imagine walking into your office on Monday morning and finding 5 million pieces of unopened mail waiting on your desk. Plus, you have not been paid for the past several weeks, and you have been advised it will take another couple of weeks to process your paycheck. Welcome to the IRS in 2019!
Just a few months ago, at the end of January, this is what furloughed employees with the Internal Revenue Service faced when they returned to work after the government shutdown. The IRS furloughed almost ninety percent of its workforce during this time. Employees returned to work after 35 days off to a backlog of work and the first peak of the 2019 tax season starting.
The IRS is working hard to catch up on the work that piled up as a result of the government shutdown while also implementing the changes required by the new tax reform. With most of the new tax laws being implemented for the 2018 tax year and tax season just starting, the timing of the government shutdown could not have been worse for the IRS.
At this time, the IRS is not extending the tax filing deadline for 2019, except for victims of tornadoes and severe storms in Alabama, who will have until July 31, 2019 to file their 2018 individual and business tax returns and make certain payments. However, two House Democrats, Representatives Sean Casten (Illinois) and Lauren Underwood (Illinois), introduced the Taxpayer Extension Act last week. If the law passes, it would give all taxpayers five additional weeks — the length of the government shutdown — until May 20, 2019 to file their 2018 tax returns.
Representative Underwood described the legislation as
... common sense legislation that will help give taxpayers extra time to ask questions and file their taxes this year.
The two Democrats reason: the extension is equivalent to the length of the government shutdown and will give taxpayers extra time to ask questions about the new tax rules before filing their tax returns. If passed, this law would help alleviate the pressures on the IRS to catch up on five weeks of backlogged work in such a short period of time, an almost impossible task.
The new tax reform caught many taxpayers off guard. The IRS issued a press release last year urging taxpayers to update Form W-4 with their employers, but most taxpayers did not. The new tax reform changed the tax withholding tables, which affected the proper federal income tax withholding from paychecks and the amounts of required quarterly estimated tax payments. Unfortunately, the results have been that many taxpayers underpaid their taxes last year by having too little withheld from their pay. Many taxpayers did not even realize they were getting an additional amount back in their pay, when the IRS updated the withholding tables on the backend, as it is difficult to tell when the amount is small and/or your pay fluctuates each pay period.
Typically, the IRS applies an underpayment penalty if a taxpayer fails to pay 90% of their tax throughout the year when due by having it withheld from their pay, making quarterly estimated payments, or a combination of both. The Government Accountability Office estimates that almost thirty million taxpayers had their taxes under withheld in 2018 due to the passage of the new tax reform. In response, the IRS provided a waiver for most taxpayers who paid at least 85%, instead of the usual 90%, of their federal income tax throughout the year in 2018 when due. Although a 5% difference may seem like a small amount, the results will be that the underpayment penalty will be waived for millions of Americans for 2018.
With the biggest tax reform in thirty years affecting tax returns and tax withholding for the first time in 2018, the government shutdown adversely affected the IRS by cutting almost 90% of its workforce for 35 days. It could not have come at a worse time. Common sense tells us there is no way the IRS could recover from something so devastating in such a short amount of time. Taxpayers should expect longer hold times when contacting the IRS this year and delays on processing returns until the IRS has managed to catch up on the backlog of work.