Don't Mess With Taxes

The 43 states that collect some type of income tax from their residents plan to follow the Internal Revenue Service schedule and start their 2016 tax-filing seasons on Jan. 19.

But when it comes to refunds associated with 2015 filings, the federal and some state calendars diverge dramatically.

The IRS, so far, is sticking with its hope prediction that it will issue more than 90 percent of refunds this year within at least 21 days after it receives the electronically filed returns.

Illinois, Louisiana and Utah officials, however, are saying not so fast. They have alerted their taxpayers that in some cases it could be months before they get their state tax refunds.

It will be a struggle for some filers to get their state tax refunds early this filing season.

The reason for the delays, according to the various state tax departments, is enhanced efforts to stop tax identity theft and associated fraudulent refund claims.

Illinois targets March deliveries: The Illinois Department of Revenue announced on Jan. 4 that it "does not anticipate releasing Individual Income Tax refunds for the 2016 tax filing season until March 1, 2016."

While the delay will distress those filers awaiting state tax refund money, Illinois officials say their efforts are paying off. Last year the Illinois tax office stopped nearly $5 million that criminals tried to claim by false filings.

"Our new security protocols proved very beneficial in detecting and stopping fraudulently filed returns last year, and we are continuing to enhance our fraud detection efforts this year," said Connie Beard, director of the Department of Revenue. "By delaying tax refunds by just a few weeks, we'll be able to better detect attempts at identity theft and ensure taxpayer refunds do not fall needlessly into the hands of criminals."

Illinois taxpayers can go ahead and get their filing task out of the. The tax department says that for returns that are e-filed before March 1, it expects to issue refunds within two to three weeks after that month's start date. If you file, again electronically, after March 1, state tax officials say you should get your refund within two to three weeks from the date your return was submitted.

Utah's mandated March 1 deadline: The Utah Tax Commission says that a new state law could push some of its return processing and associated tax refunds into March, too.

Since most tax crooks make off with fake refunds before the real taxpayer victims get a chance to file their returns, the state has implemented a stricter tax data matching system. Basically, the Tax Commission now must electronically compare a filer's income tax return with the employer's withholding reports.

To facilitate this matching, employers are required each year to electronically file their Utah annual withholding reconciliation forms and associated W-2 and 1099R forms by Jan. 31. If they don't, they'll face financial penalties.

But it's taxpayers who also could be penalized if employers are slow in meeting the deadline.

Even if you, the legitimate taxpayer, files a state tax return, the new law prohibits the Tax Commission from issuing you your refund before March 1 if your employer did not electronically file the business' related tax data by Jan. 31.

Louisiana expects 60-day delay: The situation is the same in Louisiana, where the Pelican State's tax department says that over the past two years, its anti-tax fraud efforts have saved taxpayers more than $38 million and led to the arrests of more than 50 individuals accused of tax ID theft related crimes.

Louisiana officials plan to keep that up in 2016. 

The Department of Revenue's enhanced security measures mean it will take additional time, specifically up to 60 days, to process refunds this filing season. During that time, the state tax department says it will use "all available technology and resources" to thoroughly review suspicious tax returns.

The two-month delay applies to e-filed returns. Taxpayers who send in paper returns should expect to wait 12 to 14 weeks for their refunds.

More states to delay refunds? These three states could be the start of a trend that started in 2015 and is picking up steam this filing season.

Last year, several states halted tax return processing because of tax ID theft and refund fraud worries.

"We saw quite a bit of testing the [state refund delay] waters last year, and we know there are a number of states that are just waiting for a few others to go first," Verenda Smith of the Federation of Tax Administrators told Politico.

This year, in addition to the three states that have made official delayed refund announcements, Wisconsin reportedly has warned its taxpayers that refunds could be late because of fraud protections. The Badger State has not set any dates, saying instead it will examine suspicious returns on a case-by-case basis.

Adjust your state withholding: So, state taxpayers depending on a refund, budget accordingly even if you're not in Illinois, Louisiana or Utah. Filers nationwide could find their refunds arriving later than usual this year.

And if you typically use your federal and state refunds as forced savings accounts, you might want to rethink that strategy.

Tax fraud is not going away any time soon, meaning this trend of closer scrutiny at state and federal tax return processing levels also will continue for a while, like into future tax years. And that means that late-issued refunds will become the norm.

To avoid that situation, consider adjusting your payroll withholding so that you'll have that money in hand throughout the year, rather than waiting -- and waiting and waiting -- to get it back after you file the next year.

You also might find these items of interest:

• State tax departments
• California has $28 million in unclaimed state tax refunds
• Maryland issuing court-ordered county tax credit refunds