The Internal Revenue Service has announced that taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns, as do those taxpayers who itemize deductions on Form 1040 Schedule A.
The IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17. The start of the 2011 filing season will begin in January for the majority of taxpayers, according to the agency.
People claiming any of the three items involving the state and local sales tax deduction, higher education tuition and fees deduction, and educator expenses deduction, as well as those taxpayers who itemize deductions on Form 1040 Schedule A, will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.
"Most of our clients are Schedule A filers – a fair amount have children in college and some are in the teaching profession. All of these clients will be impacted by the directive to delay filing until the latter part of February", Felix A. Addeo, CPA, told AccountingWEB. Addeo is a principal at Cranford, NJ-based Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC.
Waiting to file returns could create a logjam for accounting firms as deadlines approach, thus making tax season more demanding than usual. Addeo said his firm will react to these matters by keeping its staff motivated and its clients informed.
"Change and the backlog of work are systemic in our profession. Every filing season presents a new challenge. But the greatest obstacle to overcome is time", Addeo said.
"As a firm, we take steps to encourage an orderly workflow for our clients and staff. When the time frame is shortened, the pressure to execute mounts", Addeo said. "Third-party information is being provided later and later and now the late release of certain forms and the delayed date for electronic filing will certainly add to the workload compression."
Larry Sipos, CPA, JD, tax shareholder and department director of tax operations at Pittsburgh-based Alpern Rosenthal, agreed that the delay will add some pressure.
"The tax season seems to creep back a bit every year. Interest and dividend 1099s used to come out in January and now generally come out in late February. Corrected statements can follow well in to March", Sipos told AccountingWEB. "But, yes, although the impact is currently unknown, one cannot help but believe that this pushes some work to a later date."
The IRS will announce a specific date when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes, the agency said.
"The majority of taxpayers will be able to fill out their tax returns and file them as they normally do", said IRS Commissioner Doug Shulman. "We will do everything we can to minimize the impact of recent tax law changes on other taxpayers."
The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.
Taxpayers will need to wait to file if they are within any of the following three categories:
- Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses, and state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5.
- Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students – covering up to $4,000 of tuition and fees paid to a post-secondary institution – is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
- Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.
For those falling into any of these three categories, the delay affects both paper filers and electronic filers.
Boise, Idaho-based Laura L. Canales, CPA, said it is important to communicate with clients that the only delay is in filing. It is still necessary to have documents in order and not to delay preparation, she said.
"I can stack everything up in the computer and just push the button when the IRS gets the e-file system ready to accept my clients' returns", Canales told AccountingWEB. "If my clients feel the need to have a return filed quickly and want to go elsewhere, I will let them know that this is an issue with every preparer; it's even an issue if they self-prepare."
The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can download updates from their software provider. The IRS Free File program also will be updated.
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.
Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.
In addition, the IRS reminds employers about the new withholding tables for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, is available.