Tax-law changes may alter early filers' plans, but the wealthy are not as likely to be affected.
Taxpayers who claim deductions for home mortgage interest, gifts to charity and state and local taxes will now have to wait until mid- to late February to file their 2010 returns.
The Internal Revenue Service attributed the delay for the filing season to changes in tax law for 2010 that were not finished until late December. It said on Dec. 23 that it needs extra time to put processing systems in place.
"The majority of taxpayers will be able to fill out their tax returns and file them as they normally do," IRS Commissioner Douglas Shulman said in the statement. "We will do everything we can to minimize the impact of recent tax-law changes on other taxpayers. The IRS will work through the holidays and into the new year to get our systems reprogrammed and ensure taxpayers have a smooth tax season."
The delay also applies to filers preparing to take advantage of a deduction for college tuition and fees of up to $4,000 and of a $250 deduction for teachers' out-of-pocket classroom expenses.
The filing season's late start will affect an estimated one-third of U.S. taxpayers, those who itemize their deductions rather than claiming the standard deduction, which for 2010 is $11,400 for a married couple filing jointly and $5,700 for individuals. According to IRS data for 2008, 33.8% of individual returns, or 48.2 million filings, included itemized deductions.
The changes do not affect the April 15 deadline for filing tax returns. Many taxpayers do not file until close to the deadline, in part because it can take time to gather the necessary documents.
More than half of married couples filing jointly itemize their deductions, and taxpayers who itemize tend to have higher incomes. They collectively received 69.4% of adjusted gross income in 2008, according to IRS data, more than double their share of the U.S. population.
Alan Straus, a certified public accountant in New York, said the delay would affect taxpayers who file early and are anticipating refund checks from the IRS.
"For most of my clients, they're upper-income, and they won't file until much later anyway because their info isn't complete," said Straus, a former chairman of the New York State Society of CPAs' committee on relations with the IRS. "This is only a big deal to those expecting refunds and counting on them quickly. For those people, it will be unfortunate."
The change is unlikely to affect taxpayers who wait until close to the April 15 filing deadline to complete their returns. In 2010, more than 40% of taxpayers filed their returns after March 26.
Lou Crandall, the chief economist at Wrightson ICAP LLC in Jersey City, said the IRS move could delay $10 billion to $20 billion in tax refunds that would have gone out in late January or early February.
That would not be enough of a cushion to alter when the Treasury Department is expected to hit the $14.294 trillion federal debt ceiling, Crandall added. He said he anticipates that the debt ceiling will be reached in April or May, after which the Treasury cannot sell additional bonds to finance the budget deficit.
"This should not affect the timing of the debt ceiling," Crandall said. "My projections suggest that the Treasury will not get close until early April, and there is a chance that it might not have to employ accounting tools until May. The backlog from this should be worked off before it is relevant."