It’s just a few weeks until Tax Day. Have you filed your tax returns yet? Chances are, the answer is no.
In 2016, the Internal Revenue Service (IRS) received 152,544,000 individual income tax returns through the end of the year. Taking into account health care reporting requirements, expiring tax breaks, and a relatively healthy economy, those numbers were expected to climb higher in 2017. Yet, with less than a month to go, numbers from the IRS indicate that they’ve only received about half of those 2016 totals.
Here’s how the numbers look so far as compared to the totals from the same time last year:
Even visits to the IRS website at irs.gov are down.
So where have all of the taxpayers gone?
Most tax professionals anticipated a slow start to the season because of enforced delays for tax refunds. More than a year ago, Congress passed the “Protecting Americans from Tax Hikes (PATH) Act of 2015” which required the IRS to wait until February 15, 2017, to issue refunds to taxpayers who claimed the earned-income tax credit (EITC) or the additional child tax credit (ACTC). By law, the IRS could begin to release affected tax refunds on February 15 (you can check out refund date estimates here).
When early filing numbers were down, it seemed to follow that taxpayers who would have otherwise filed early in order to claim a refund were simply waiting for the deadline (even though the IRS emphasized that it would process tax returns normally before that date). But February 15 came and went – and numbers were still down. There was no mad stampede to file following the February 15 date. So what gives?
There were some suggestions that taxpayers were waiting to see what might happen to the Affordable Care Act. The first version of the GOP proposal would have repealed it retroactively to January 1, 2016, while the amended version would have sped along the repeal of Obamacare taxes like the tanning tax, Net Income Investment Tax, Medicare surtax and medical device excise tax. Last week, however, House Speaker Paul Ryan (R-WI) pulled the vote on the American Health Care Act (dubbed “Trumpcare”) and messages have been mixed on when efforts to repeal Obamacare might resurface.
There have also been suggestions that taxpayers were waiting to see what might happen to tax reform efforts. Talk of lower tax rates and new tax credits have fueled speculation that tax bills could go lower – next year. Realistically, however, any significant moves on tax reform won’t happen before Tax Day.
With the uncertainty over the Affordable Care Act and tax reform, some advisors have proposed that taxpayers take a “wait and see” approach this tax season. I can’t get on board with that advice. While you can never rule out a last-minute vote from Congress, the closer we creep towards Tax Day, the more impractical it becomes to do anything retroactively to 2016. If Congress makes it hard for taxpayers to benefit from changes (for example, making taxpayers file an amended return), they would lose any real political capital gained from reform in the first place.
Some folks have posited that a stronger economy might mean that taxpayers who will be writing a check fear that they might owe more taxes this year and are waiting until the last minute to file. That could be true – but remember that you can file early and still wait to pay up until Tax Day with no penalty.
A couple of tax professionals have also mentioned that the dip in filing statistics could be tied to fewer fraudulent returns shuffled through the systems. Maybe. But millions?
I’ll confess that I haven’t filed yet – but I’m not one of those taxpayers skewing the numbers. I never file early for a variety of reasons, including wait times for revised brokerage statements (they just arrived) and forms K-1 from our business. About 10% of taxpayers – myself included – file for extension each year. It will be interesting to see whether those extension numbers will be up this year or whether taxpayers are just waiting until the very last minute to file. Or maybe taxpayers just aren’t filing this year at all.
