Federal sequestration could affect speed of tax refunds, some experts say
One of the first places Americans will see the impact of sequestration is in fulfilling their civic duty of paying federal taxes.
The across-the-board cuts of federal spending will fall on the Internal Revenue Service at the its busiest time - tax season.
Slowing down the tax collector may not seem like a bad thing, but consider that 70 percent of tax filers are receiving a refund and that most tax returns haven't been filed. By March 1, just one-third of the anticipated 149 million federal tax returns will have been processed and seven out of 10 filers is due a refund, said IRS spokesman David Stewart.
The IRS is formulating a plan should sequestration occur. All IRS activities at the 110,000-employee agency are on the table, but nothing has been decided, Stewart said.
"We are working on a plan," he said. "We aren't sure what the impact will be yet."
He added that it's too early to conclude that sequestration will slow return processing.
Tax professionals have little doubt that should sequestration happen, the processing of a good portion of tax returns will slow.
"Rest assured, there will be a curtailment of service and it will all be negative," said Jackson Hewitt chief tax officer Mark Steber.
Much uncertainty exists around the sequestration, but it most likely to slow things down for certain filers. Those who can expect delays are filers who have a change from prior-year taxes, such as a new address or dependent.
Those whose forms are complete with all supporting documents may not see much of a delay, because those are largely automated.
The working poor, who typically overpay their tax liability through payroll deduction throughout the year and count on their tax refunds to make ends meet and pay for essentials, could find themselves unable to get caught up on accumulated bills or put heating oil in the tank, said Michael Hanley, executive director of United Neighborhood Centers of Northeastern Pennsylvania.
"Tax refunds come at a crucial time," Hanley said. "Delaying that money for a few months would be a huge burden. I can easily see it in a worst-case scenario ending up in an eviction."
There's also an impact on the broader economy. With 70 percent of tax filers receiving a refund, the delay could mean a stall in the return of billions of dollars to the economy.
The IRS's Stewart said it's always a good idea to file early, particularly if the filer believes he or she is entitled to a refund. The process can be significantly sped up by doing two things: Filing electronically and designating a bank account for direct deposit of the refund.
E-filers with direct deposit and no issues with their taxes can get their refunds in about 21 days, Stewart said.