Here’s an overview of what to expect:
Longer wait times. More than 100 million people attempt to call the IRS each year, but because of budget cuts, fewer than half of the people who call this year will get through to a human being, National Taxpayer Advocate Nina Olson warned last week in her annual report to Congress. Those who do get through will have to wait an average of 30 minutes. The budget cuts should also delay tax refunds for paper filers by one week or more, IRS commissioner John Koskinen warned in a separate e-mail.
“Don’t count on the IRS for any help,” says Troy Lewis, the chair of the Tax Executive Committee of the American Institute of CPAs. Lewis says he recently spent two and a half hours on the phone when he called the IRS to get help with a client’s tax return. Of that time, only 19 minutes were spent speaking with an agent. “The rest of it was listening to repetitive music.”
With even less guidance coming from the IRS, more taxpayers may seek assistance from a pro or from online software. But before paying up, people should look for cheap or free options. Taxpayers earning less than $60,000 a year can file electronically for free through irs.gov/freefile. People who make more than that can use fileable online forms. People will also be able to track their refunds and find explanations for tax credits and deductions online at irs.gov. Calling the agency should pretty much be a last resort, Lewis says.
New complications from Obamacare. The Affordable Care Act, which required most people to have health insurance last year or pay a penalty, will show up on most tax returns this year. In addition to listing income and tax credits, most taxpayers will have to say on their tax returns if they had health insurance last year. For the millions of Americans who get health coverage through their employers, Medicare, Medicaid or Cobra, this will require little more than checking a box. But some families with adult children or other dependents who aren’t covered may still have to pay a penalty, Lewis says.
People who received insurance subsidies or who didn’t have coverage will need to file new forms and make tedious calculations. Some people who received advance subsidies to help pay for health insurance will find that the credits they actually qualified for were bigger or smaller than what they received. That difference should get added to, or subtracted from, their tax refunds. Those who aren’t aware of the changes may be surprised if the new rules affect their tax refunds, says Theresa Pattara, director of public policy and advocacy for H&R Block.
Those taxpayers who didn’t have coverage last year may be able to avoid the penalty if they qualified for one of 33 exemptions that allow them to avoid the fee, such as people who didn’t make enough money to have to file a tax return, who were living abroad or who belong to certain religions. The final size of the penalty, which will start at $95 per person or about 1 percent of household income, will depend on how many months of the year someone went without coverage. Find more information at irs.gov/aca.
Fewer audits. With its smaller budget, the IRS will have fewer staff members on hand to conduct audits and to collect tax bills that are overdue. IRS commissioner Koskinen warned in his e-mail that “the government will lose at least $2 billion in revenue that otherwise would have been collected.” The audits that do take place may also take longer since the agency may experience delays when sending out letters that request additional information from taxpayers.
But that doesn’t make it a field day for tax cheats, warns Mark Steber, chief tax officer with Jackson Hewitt Tax Service. The agency’s process for matching income reported on W-2 forms and 1099 forms happens mostly electronically, so people who don’t report all of their income are still likely to get caught. “A lot of these things will be automated and you don’t want to be the person who left something off,” Steber says.
Get started early. The budget cuts, combined with the new health-related tax rules, make it even more important for people to file their tax returns as early as possible, tax pros say. That should give people more time to resolve any issues that come up, since the IRS may take longer to send out letters requesting more documentation. But some taxpayers may have another reason for filing as soon as possible this year: It will be their biggest defense against identity theft.
The IRS will have to put off new protections against identity theft because of the budget cuts, the IRS commissioner said in his e-mail. That means taxpayers’ best hope may be to file quickly before scam artists have a chance to file fraudulent tax returns to steal refunds. “Crooks will try to beat you to the punch,” Lewis says.
You can start prepping your return even if your paperwork hasn’t landed in your mailbox yet. Many companies offering online tax prep like H&R Block, Turbo Tax and Jackson Hewitt are able to download income information online using information that can be found on a pay stub or a bank statement.