Top Three Tax Facts to Know for 2016

By Damian Davila on 25 June 2015 4 comments

2015 is a rough year for taxpayers.

  • This is the first year the IRS administers the premium tax credits and individual mandates under the Affordable Care Act.
     
  • The number of IRS employees assigned to phones dropped by 26%, and those employees answer fewer than 40% of calls.
     
  • Lucky callers that get to talk to somebody at the IRS only do so after waiting up to 70% longer than five years ago, and can only get answers to the most basic tax questions.
     
  • Nina Olson, taxpayer advocate at the IRS, summarized this tax season as a "devastating erosion of taxpayer service" and a "sad state of affairs."

Once this year's tax season is in the books, it's time to get ready for the one next year. To help you determine what's in store, here are three tax facts to know for 2016.

1. More Time to File

About one third of Americans wait until the last minute to file their federal taxes.

Those procrastinating tax filers (not you, of course!) will be happy to find that most of them are going to get four extra days to file federal taxes in 2015. There are three reasons for this extension.

  • 2016 is a leap year, so February 29th provides a much needed extra day.
     
  • The 154th anniversary of Emancipation Day, when former President Lincoln signed the Compensated Emancipation Act, falls on April 15th in 2016. Made an official public holiday under Section 7503 of the Tax Code in 2005, Emancipation Day pushes the tax deadline to the next business day.
     
  • Since Tax Day and Emancipation Day will be observed on Friday April 15, 2016, the next business day will be Monday April 18, 2016.

Wohoo! Most taxpayers will have until Monday April 18, 2016 to file federal taxes (four extra days).

You may be wondering why I keep saying that "most taxpayers" get four extra days. The reason is that some taxpayers will get five extra days.

Residents of Maine and Massachusetts will celebrate Patriot's Day (a state holiday commemorating the anniversary of the Battles of Lexington and Concord, the first battles of the American Revolutionary War) on Monday April 18, 2016. The aforementioned Section 7503 of the Tax Code includes in its definition of "legal holiday" any statewide legal holiday in the state where such office is located.

So, residents of Maine and Massachusetts have until the closing hours of the postal office on Tuesday April 19, 2016 (five extra days!) to drop their federal tax forms in the mail.

Need even more time than that? Then make sure to file an extension by the deadline.

2. Over 100,000 Compromised Tax Records

Even when you cross the t's and dot the i's in your federal tax forms, something may still go wrong.

In May 2015, the IRS announced that "...criminals used taxpayer-specific data acquired from non-IRS sources to gain unauthorized access to information on approximately 100,000 tax accounts." Identity thieves got away with Social Security numbers, dates of birth, and street addresses through the IRS Get Transcript online service, which is currently unavailable.

Those 100,000 taxpayers affected by the data breach will receive a letter from the IRS officially notifying them of the event and providing recommendations for next steps, such as credit monitoring.

However, there's more to this breach.

  • An estimated additional 100,000 taxpayers will also receive IRS letters in the event that the criminals tried, but were unsuccessful, to gain access to taxpayer data through the Get Transcript application.
     
  • About 13,000 suspect returns were filed for tax year 2014 and their refunds were already sent out.

If you were a victim of identify theft, you may have already received (or will receive) an IRS letter in the near future. This would surely throw a monkey wrench into your 2016 tax filing.

3. Late State Tax Refunds

This 2015 the state tax man cometh late.

In response to the increasing number of tax fraud cases around the country, more than one state Department of Taxation is delaying refunds. For example, the Hawaii State Department of Taxation initially told taxpayers it would take six to eight weeks to process submitted tax forms.

  • By April 2015, new procedures to prevent tax fraud increased the wait period to approximately 10 to 14 weeks.
     
  • The Hawaii Department of Taxation updated the processing time to up to 16 weeks on May 6, 2015. Further delays are expected since refunds issued after July 20, 2015 will start receiving interest.
     
  • Hawaii taxpayers that file their state taxes online usually get a faster refund. This won't be the case for 2015.

But Hawaii taxpayers aren't the only ones on this boat.

  • The state Department of Taxation of Colorado has noticed a spike in fraudulent forms, so they had to suspend refunds for 10 days. As a result, many refunds may be still be delayed.
     
  • The State of Alabama Department of Revenue saw a rise in the filings of fraudulent state income tax returns using online software services, so they had to implement a Taxpayer ID Confirmation Quiz. Some Alabamians are required to take this quiz and, if the fail to complete it, they won't have their refund processed.
     
  • The Louisiana Department of Revenue didn't start issuing state income refunds until the last week of February due to an increase in tax fraud.

Waiting on your refund, if any, may put a hold on your finances, particularly when you're counting on that refund to make a down payment, pay a big bill, or reduce debt. This is why you need to figure out the appropriate withholding rate (not too big, not too small) so that you don't end up owing the taxman a big check. (See also: 8 Tax Return Mistakes Even Smart People Make)

More days to file federal taxes, letters from the IRS warning some taxpayers about identity theft and tax fraud, and delayed state tax refunds are sure to make 2016 an interesting year.

What is your forecast for 2016's tax season? Please share in the comments below or tweet us at @Wisebread.

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Guest's picture

You calculate so well. Thanks for posting the facts! Hope that next year we can breathe more easily.

Damian Davila's picture

Thank you Sandra. I hope 2016 turns out well for as many taxpayers as possible.

Guest's picture
Guest

yes this is great for 2016 now how do we get hold of our script ,for those of us aboard.

Damian Davila's picture

Hi Guest,

Could you please clarify what script you're referring to? I ask so that I can help you with your question.

Best,

Damian