No deal on ‘fiscal cliff’ could mean delays in filing returns, receiving refunds

Staffers at Liberty Tax Service in Kinston are spending the final days of 2012 updating software, preparing to hire Liberty’s signature “wavers” — and waiting on Congress to get its financial house in order before going over the fiscal cliff.

“It’s all hinging on what Congress is going to do,” franchise owner Wendy Rhodes said Thursday.

President Barack Obama and members of Congress must reach a deal on federal spending and tax rates before next Tuesday, when massive tax hikes worth about $500 billion and spending cuts worth about $200 billion automatically kick in.

Unless Congress acts to prevent it, middle-class taxpayers could become ensnarled in the mechanics of the Alternative Minimum Tax, originally devised to keep the rich honest.

“You’re going to have higher taxes across the board for all taxpayers. … You’re looking at, somebody with a $20,000 income is going to have to pay an additional $1,000 in taxes annually,” Rhodes warned.

The Internal Revenue Service has warned Congress of major impacts to taxpayers in 2013 beyond the bottom line. Pushing back the acceptance date for early returns could mean a delay in receiving a tax refund.

Acting IRS Commissioner Steven Miller wrote in a November letter to U.S. Rep. Sander Levin, D-Mich., ranking member of the House Ways and Means Committee, that the IRS typically begins planning for the upcoming tax season during the summer.

“When Congress takes action well after this planning process is underway, there is potential for substantial disruption to the filing season ahead,” Miller wrote.

The Alternative Minimum Tax was established in 1969 to ensure taxpayers at certain income levels paid income tax and could not avoid all loopholes.

The income level set in the late 1960s was not set to be adjusted for inflation, though, and Congress must pass a regular “patch” to ensure lower-income taxpayers are not ensnared by the AMT.

Miller stated in his letter the most recent patch expired Dec. 31, 2011. The income threshold in 2011 was $48,450 for an individual and $74,450 for married couples filing jointly.

With no patch for 2012, though, the threshold will be lowered to $33,750 for individuals and $45,000 for married couples.

The AMT patch also typically comes with a “special tax credit ordering rule” that applies to anyone claiming “certain tax credits,” whether they qualify for the AMT or not, Miller’s letter stated.

“Taken together, the changes to the AMT exemption amount and the special tax credit ordering rules could affect more than 60 million taxpayers — nearly half of all individual income tax filers,” Miller wrote.

If Congress does not patch the AMT, many taxpayers might not be able to file their returns until next March, before the IRS updates its processing systems and alerts the millions of additional taxpayers who would be affected, Miller stated.

Rhodes said Liberty Tax in Kinston is scheduled to open Jan. 2. She said Liberty staffers typically begin processing returns on Jan. 16, when the IRS starts accepting them, but the date of acceptance has been pushed for Jan. 22 for 2013.

She said many taxpayers are not aware of the delay in processing returns and receiving refunds, and “they are going to be in for a rude awakening when they come in.”

Rhodes said the concerns over the fiscal cliff have also affected employers in terms of when they release to employees their W2 forms, which are key to completing tax returns.

She said the IRS has told tax preparers they are “ready, either way.”

“Everything’s still waiting on Congress,” Rhodes said.

David Anderson can be reached at 252-559-1077 or David.Anderson@Kinston.com. Follow him on Twitter at DavidFreePress.