Saturday, January 22, 2011 7:12 AM HST
HILO -- First it was the state, and now it's Uncle Sam who's telling taxpayers they must wait for their refunds.
The Internal Revenue Service is currently unable to process federal tax returns from taxpayers claiming itemized or education-related deductions, it announced Thursday.
Taxpayers filing those types of returns in paper or electronic form will have to wait until at least Feb. 14 for the IRS to start processing their refunds.
"It's about 50 million taxpayers who are impacted," H&R Block spokesman Gene King said, noting America has roughly 140 million federal tax filers.
The delay stems from changes Congress made last month to extend some of the Bush-era tax cuts.
"The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season," the agency states on its website. "The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and higher education expenses deduction."
Big Island tax preparers interviewed Friday said the processing delay won't harm their businesses, tax-season hiring practices or customers.
"Actually, it will have very little impact because the people who itemize are not the ones who file in January or early February," said Mark Swann, owner of Hilo Income Tax Service. "It's the very simple tax returns that get filed early."
The IRS is not holding off processing standard forms, which can be filed immediately.
Swann, whose family-run business has been processing individual and business tax returns for 27 years, said the IRS tax season just started Jan. 14, with no refunds available until Friday.
Also, employers and banks don't have to mail W-2 wage forms or statements of mortgage interest until Jan. 31, so the IRS delay is only about two weeks, Swann said.
A tax preparer for more than 30 years, Karl Kirkendall said most of his clients who itemize typically don't file their returns until February.
"I don't think it has a radical effect on filing at this point," he said.
Kirkendall said he also feels that taxpayers won't be inconvenienced by the IRS delay. People may still have their itemized tax forms prepared, while those choosing the 1040 EZ form don't have to wait for IRS processing, he said.
Pam Arant, franchise co-owner of Hilo's three H&R Block locations, has not put off hiring employees because the company can still process tax filings internally.
Customers also have been very understanding, she said.
"They're not upset with us or the IRS for that matter," Arant said. "They're just sort of taking it in stride."
H&R Block customers seeking to do an itemized Schedule A return are given the choice of having their taxes prepared and held until the IRS is ready to process the returns, or file without itemizing and then put in an amended return, Arant said.
"Most of the clients don't want to be bothered by that," she said of the two-step filing process.
The IRS delay differs from former Republican Gov. Linda Lingle's cost-cutting decision last year to withhold issuing $275 million in individual and corporate tax refunds until the new budget year started July 1, 2010.
That move achieved a "balanced" budget by keeping the financial liability off the books until the current fiscal year started.
Hawaii's Democratic Legislature responded by mandating that the Department of Taxation take no longer than 90 days from the due date or when a return is filed, whichever is later, to issue tax refunds.