What You Need to Know About the Impact on Your Tax Refund Amidst Looming Shutdown

Only a few days remain before March 1, the first of two deadlines that Congress must meet in order to adopt a planned $1.66 trillion federal budget deal before the government runs out of money. If the House and Senate (and Republicans and Democrats) fail to reach a spending agreement by the specified date, numerous government agencies, such as the IRS, may face temporary closure until a bill is passed by Congress.

If you submit your taxes at that time, what happens to your tax refund? We can’t reflect on past events during a previous government shutdown, as there has never been a funding gap during tax season. However, we will clarify the potential implications for you.

Here’s the information available regarding the potential impact on the IRS in case of a government shutdown in March. This is what occurs with Social Security checks and other government benefits during shutdowns.

Impact on Taxes and IRS Operations

Why is a government shutdown discussed?

Federal fiscal years run from October to September. In many years, Congress passes a series of appropriations acts to finance the government for another year before the fiscal year deadline or funds the budget temporarily while it negotiates a long-term deal.

Congress enacted several temporary funding packages last year to keep the government working while it worked on a budget after failing to agree before September. Congress funded Agriculture and Transportation until March 1 and Defense, Justice, and financial services including the IRS until March 8 as part of the short-term budget arrangement. If we approach March and Congress hasn’t funded the government, law requires those portions to close.

Do you think the government will shut down in March?

It all relies on whether Congress can adopt a federal budget package for long-term financing through the fiscal year or short-term funding to give the two chambers more time to agree. If this happens, budgeting would be delayed but the IRS will have time to complete most tax returns.

As the deadline approaches, Minnesota Republican Rep. Tom Emmer said the House would not support another short-term financing plan to avoid a government shutdown. “You’re not going to get another [short-term spending bill] out of our conference in Congress,” Emmer told Bloomberg News Feb. 15.

Three interim financing measures have been enacted for this budget to avoid a shutdown, so Congress may act again.

The IRS could close during a government shutdown.

The IRS usually keeps an incomplete team behind during shutdowns to maintain vital procedures. The IRS hopes to exclude all staff from a shutdown, but some components may be unavailable. The US Treasury’s contingency plan may furlough 60,000 workers, but the Inflation Reduction Act permits key functions to continue.

Will the IRS distribute physical and digital tax refunds if the government goes down?

The IRS will distribute print and digital tax refunds if the government goes down. Electronic refunds should be processed normally, but tax return difficulties may be difficult to resolve. Refunds for hard copy taxpayers may be delayed. The IRS advises filing online and setting up direct transfer for refunds within 21 days and submitting early to prevent delays.

How much could tax refunds be delayed by a shutdown?

It seems that the IRS is unsure about the potential for another shutdown during the filing season, given that they did not face one in 2020 amid the pandemic. The IRS is currently in the process of recovering from the shutdown in 2020, and additional delays could worsen the existing situation.

Will taxpayers need to pay their taxes on time if the government shutdown extends past April 15?

Indeed, the tax filing deadlines remain unchanged despite a government shutdown. Even if the shutdown extends past Tax Day, it’s important to ensure your taxes are paid quickly. If payment is not made, penalties and late fees will continue to accrue until the balance is settled.

We will provide further updates on this story if there is a government shutdown and once we receive more guidance from the IRS.

Here’s a compelling reason to submit your tax return promptly and a way to receive your tax refund earlier than usual.