Filling the budget gap--with coerced "loans"

[Atash Hagmahani]

http://finance.yahoo.com/news/CashStrapped-States-Delay-cnbc-3787752102.html?x=0&.v=1

Similar news has been posted before, but apparently more states are doing it now (delaying tax refunds):

Something similar is happening in North Carolina. The state's Department of Revenue posted a note on its website stating that the "state continues to feel the effects of the slow economy, and the department is managing the distribution of refunds as a result."

Refund payments were slow to be processed in North Carolina last year too, the only different now is that the department is keeping mum on when taxpayers might expect to receive their refunds. Last year, deadlines weren't met.

"We ended up not being right and people got even more upset," said Thomas Beam, a spokesperson at the North Carolina's Department of Revenue. He says besides managing funds, other factors-such as wrong addresses, social security numbers or not attaching the right forms-can further slow down payments.

The state continues to release refunds at a slower pace, and updates how much they've processed on the site regularly. As of late February, 727,282 refunds were processed in North Carolina totaling over $500 million.

Ivan Kenneally, an assistant professor of political science at the Rochester Institute of Technology, says that more states could join in delaying state income tax refunds as states realize they have little option.

"It's essentially an involuntary no interest loan from the taxpayer," Kenneally said. "Other states have done it in a noncommittal way. But in the meantime they've slowed down the process."

Last year California and Alabama delayed processing refunds. This year, a spokesperson at California's Franchise Tax Board says that refunds are being sent out in a timely fashion. In Alabama, however, refunds are being processed slower, according to Carla Snellgrove, a spokesperson at the state's Department of Revenue.

"Refunds are being approved but are going out slowly this year," said Snellgrove. "We haven't stopped issuing refunds." She said under normal conditions an electronic refund would take about five to six days to get to taxpayers. This year, it's slower, but there's no timetable on when taxpayers can expect refunds.

"It varies," Snellgrove said. "Refunds are issued as the fund balance allows them to be issued."

OK, folks, taking calls for when you think the states are going to default. And which will be first? California?

[opsec]

All of them, and yes, I think Kalifornia goes down first. Not like that's saying much, the rest will follow within a year.

[MountainMeg]

This would be a good reason, going forward, to calculate the W-4 (withholding) for a small balance due.  I'd rather owe $100 then have $500 coming back to me "sometime" in the future.

[opsec]

Can I claim a couple of dogs as dependents?

[Atash Hagmahani]

I agree, Meg.

Folks, you have been warned. Figure out what the maximum amount owing you will get into trouble for, and calculate as close as you can to within that amount. You can probably avoid a penalty by making a payment before the tax deadline. Read the fine print.

I bet, by the way, that penalties for amounts due will start rising.

[MountainMeg]

Only if you can secure them a social security number Opsec.  And it has to match the SSN#, date of birth and last name on the social security database.  If you can figure that out let me know - I have a menagerie here to claim!   

You don't have to figure out the maximum to owe - just get it as close to zero liability as possible on the owing side. 

[Atash Hagmahani]

Duh, right, I wasn't thinking...up too late I think. Yes, that's right, just make sure that you're not making a permaloan, and stay well within the tolerances.

[Eddie]

You don't have to figure out the maximum to owe - just get it as close to zero liability as possible on the owing side.

What's the trick to this if your single and can no longer itemize?

[MountainMeg]

If you get a full W-4 form from irs.gov, there's a worksheet to calculate allowances.  The number of allowances is used to calculate your withholding.  You'd probably want to take what their sheet says and add one allowance to decrease withholding.  If you google "W-4 2010 calculator" a couple of sites, including the IRS, come up.