Monday, February 8, 2016

States Fight Tax Fraud by Delaying PIT Refunds

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To fight tax fraud, many states accelerated the filing deadline for employers to file Forms W-2. There are now 11 states and Puerto Rico that require employers to file W-2 forms electronically or on magnetic media by January 31. Nebraska will have a filing deadline of February 1.

A growing list of states are taking another action to fight tax fraud by delaying personal income tax (PIT) refunds to taxpayers. Sometimes employees file early hoping to get a refund faster. They may use information from a final paycheck to complete their PIT returns, rather than wait for a Form W-2 (due to employees January 31). This is not a recommended practice as a final paycheck may not have all the necessary information that a Form W-2 will have.

One state that says it will delay PIT refunds is South Carolina. The South Carolina Department of Revenue is advising taxpayers that they will not receive their refunds until after March 1, no matter how early they file. This delay will give the state time to verify W-2 forms with the IRS to ensure the state returns are valid. South Carolina did not have an early filing deadline for Forms W-2 for employers but encouraged payroll industry leaders to file early, which ADP agreed to do. South Carolina legislation has already been introduced to require early filing by January 31, effective in 2017.

Utah is another state that is also following the practice of delaying PIT refunds.This year Utah implemented the new early filing deadline for employers. The new law also prohibits the Utah Tax Commission from issuing PIT refunds before March 1, unless both the employer and employee have filed all required forms and returns.

The APA has suggested to the IRS that it delay federal income tax refunds to help fight tax fraud, but the IRS has not issued a notice about doing this. So far, it appears only some states will delay PIT refunds.

Read PayState Update for more details and check back with Pay News Now as it continues to follow this topic.