Remember back in the day before debit cards and electronic checks when you could ride the float? When you could write a check you didn’t have the money to cover, knowing that your paycheck would be deposited before the check you wrote cleared and no one would be the wiser? Well, state governments are basically doing the same thing to cover their budget shortfalls; except instead of floating on check processing time, they’re floating on your tax return processing time. Sounds sort of like cheating doesn’t it? In a way it is – it’s a way to artificially pad budgets that have been overextended - but it’s also completely legal and necessary since these states don’t have the cash to cover the refunds they owe. But don’t worry they’ll get the money once the next fiscal year rolls around and the budget resets. Sound familiar?
Which States Will Be Late?
These four states have said that refunds will be delayed:
- Alabama: Spokespeople for the Department of Revenue were quoted in The Birmingham News as saying that refunds are going out, but are going out slowly; however, the department expects refunds to be sent out faster than last year
- Hawaii: According to the Department of Taxation, 2009 income tax refunds will be delayed until July 1, 2010 and refunds will be released on a first-in, first-out basis, so early filers will receive their refunds first
- Kansas: The Secretary of Revenue Joan Wagnon was quoted in the Winfield Daily Courier as saying that she expects the state’s budget problems to delay income tax refunds
- North Carolina: The NC Department of Revenue announced on their website that while they are still issuing refunds, they are doing so slowly, re-evaluating the refund distributions week to week
New York considered a similar freeze on refund checks, but Governor Paterson withdrew the idea. The state began sending out refund checks April 1st.
Where’s My Interest?
Each state has their own rules regarding when or if they will pay interest on late refunds.
- Alabama is required to begin paying interest beginning 90 days after the due date of the return (or July 15th) regardless of when you filed.
- Hawaii has 90 days from the due date or the date the return is filed, whichever is later, to approve a refund, plus an additional 45 days to mail the refund before they have to pay interest (that’s a total of four and a half months before any interest accrues)
- Kansas has two months after the due date or the date that you filed your return, whichever is later, before they have to pay interest on your refund.
- North Carolina will pay interest if the refund is not issued within 45 days from April 15th or from the date the return was filed, whichever is later.
How To Avoid This Next Year
There are four main things you can do to help speed up your refund:
- File early
- File electronically
- Be sure your return is accurate
- Choose direct deposit
Alternatively, you can adjust your state withholdings:
The only real way to avoid this problem is to prevent it because even if you do everything right, you still have no control over when the government decides to send your refund. But what you do have control over is how much tax you have withheld from your paycheck. You can adjust your state withholding so that you are only paying in enough to cover your tax liability, thereby avoiding the need for a refund. Otherwise, you're essentially giving the government an interest-free loan. Just make sure you are covering at least 100% of last year’s tax liability.