Tax Filing Delays Will Affect Millions of Taxpayers

The late income tax changes signed into law in late December are giving the IRS a headache as it prepares for the 2010 tax filing season. Many of the changes affect existing forms and calculations that the IRS has already prepared in anticipation of January filing. Efforts to update and change all affected forms will delay the ability of millions of taxpayers to file their returns until mid- to late-February. The IRS indicated this week that taxpayers in three situations will be affected by the tax filing delay:

1) Educators claiming the Educator Expense Deduction for out-of-pocket classroom expenses up to $250. This deduction allows those who teach kindergarten to grade 12 to deduct classroom supplies and books up to the maximum.

2) Those claiming the Higher Education Tuition and Fees Deduction. This claim covers an annual maximum of $4,000 in post-secondary costs and requires the filing of Form 8917. The IRS emphasizes that other educational deductions and credits are not affected by the filing delay, including the Lifetime Learning Credit and the American Opportunity Tax Credit.

3) Taxpayers who itemize their deductions on Schedule A. This is by far the largest group of affected individuals. Common itemized deductions include mortgage interest, medical expenses and charitable donations. The reason for the delay of the new Schedule A is the inclusion of the Unemployment Insurance Re-authorization and the state and local sales tax deduction extension.

Taxpayers in one of the above situations will have to wait until the IRS announces that all forms and schedules for the 2010 income tax returns are up-to-date. Any estimated tax calculation prepared before that time may be incorrect and will not be accepted by the tax authority.

The IRS has not released a definitive date when the updated forms and schedules will be ready but report that they are working through the holidays to prepare the forms as soon as possible. The delay will affect those filing manually as well as those using tax preparation software and e-filing services. Taxpayers using tax preparation software should check with the software company to find out when the software is fully up-to-date. The IRS currently expects no delays in e-filing once the update has occurred. Taxpayers who e-file often receive their refunds within two weeks of filing.

A full list of forms affected by the tax filing delays can be found here.