Cash-Poor States Delay Tax Refunds

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Over half a dozen states formally delayed distributing tax refund checks this year, and a few still are unable to get money back to taxpayers.

Rhode Island, most recently, announced it will continue to hold off on returning the $36.3 million it owes to 53,000 residents due to cash-flow problems. The state (which, due to the effects of serious flooding on the East Coast, did not require taxpayers to file until May 11) pushed back its initial return projections four to six weeks after realizing it would have to pay off several large state expenditures in the month of June.   

Paul L. Dion, chief of the state Office of Revenue Analysis told The Providence Journal that the state expects to have all refunds returned by the end of its fiscal year, which is June 30.

Hawaii and New York also announced that they would hold off on distributing tax returns until the end of their respective fiscal years. New York started refunding taxpayers in April. Hawaii, initially expected to hold checks until July or August to account for a $721 million revenue shortage, started to refund early tax filers late last month.

Delays are due, of course, to the economic downturn. However, it is not always a lack of funds that causes a lag time. Iowa, for example, was forced to delay distributing refund checks to taxpayers who filed via the post office because the staff allocated to process hard-copy tax returns was cut due to budget constraints. Iowa is also hoping to have all refund checks returned by the end of June.

Georgia, similarly, experienced delays due to staff cutbacks. Other states who formally announced a tax return postponement this year include Alabama, Kansas and North Carolina.

According to TurboTax.com, state refunds are generally sent out 30 days after filers submit their returns. If a state is going to delay its tax refunds, it will announce so publicly. Extended delays (usually 90 days or more) require that a state pay interest on the back refunds; specifics vary from state to state.  

However, taxpayers who want to avoid this problem in the future can consider filing their returns as early as possible or changing the amount of money withheld by employers so they don’t overpay during the fiscal year and thus, won’t require a return.

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