Taxpayers in several states may face delays in receiving their tax refunds this filing season amid changes in tax policies as well as the processes for filing returns.
Tax refunds are issued to taxpayers when the amount of taxes they paid over the course of the year is greater than the amount of liability based on their return after deductions or credits are applied. Refunds are issued by the IRS at the federal level, while state revenue agencies distribute refunds based on their policies.
This tax season's refunds have been larger following the enactment of the One Big Beautiful Bill Act (OBBBA) at the federal level, which extended lower tax rates that were set to expire and also created new deductions that required the IRS and Treasury Department to implement new rules for handling them.
Several states have informed taxpayers that their state-level tax refunds may be delayed this tax season for a variety of reasons, including the need to update tax forms and systems to account for OBBBA's changes at the federal level. Many taxpayers rely on the financial boost of a tax refund check to help shore up household budgets or for special expenses.
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Taxpayers in New York who filed early this tax season may face processing delays due to the timing of software updates that were installed in early February, which could leave some taxpayers in a "processing loop" according to a report by Kiplinger.
Federal tax policy shifts and the state of New York's inflation refund checks that were disbursed late last year may not have been accounted for prior to the software update.
Idaho's budget office announced last month that tax refunds may be delayed up to six weeks this filing season due to several factors.
The agency noted that Idaho cut the budgets of most state agencies in the last two years, which has left the state government with fewer temporary workers who can assist with processing tax returns. Idaho also enacted a law last month that retroactively added similar tax breaks from OBBBA to the state tax code, including the deductions for tipped income and interest on new car loans.
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Oregon announced that taxpayers who filed paper returns won't see their refunds until early April because the state Department of Revenue won't begin processing paper returns until the latter part of this month.
The agency said there was a delay in receiving tax forms from the IRS that pertained to tax law changes under OBBBA, while it also adopted some of the law's policies at the state level, such as a larger standard deduction and a deduction for overtime pay.
Those changes have prompted changes to tax forms and the agency's tax return processing systems for paper returns. Oregon's Department of Revenue is encouraging taxpayers to file electronically this season to avoid delays.
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South Carolina taxpayers are facing complications after the legislature didn't update some of its state-level tax provisions to account for the OBBBA, meaning some federal provisions are accounted for at the state level.
The discrepancy created issues with tax software programs trying to correctly calculate manual "add backs" of federal tax breaks on returns, which led to delays and may require some filers to submit an amended return.
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Taxpayers in the District of Columbia may face refund delays due to Congress overturning a D.C. tax law that had created a divergence from OBBBA provisions in federal law. Those changes prompted a software update in February, which could require some filers to re-file their returns after forms have been revised.
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