Officials expect fiscal cliff’ to delay tax filing season
CHARLESTON, W.Va. - With Jan. 1 just days away and no action yet from Congress to avoid a series of automatic tax hikes and spending cuts, state tax officials are expecting significant delays in the coming tax filing season.
Despite weeks of posturing, President Barack Obama and congressional leaders are still at loggerheads over a plan to avert nearly $600 billion in automatic tax increases and spending cuts scheduled to go into effect Jan. 1.
This so-called fiscal cliff was a part of a 2011 deal to raise the nation's debt ceiling. The tax increases come from the scheduled expiration of the 2 percent payroll tax cut and other tax cuts passed under former President George W. Bush.
Other deductions, including the out-of-pocket classroom expense deduction for educators, tuition deductions for college students, and deductions for state and local sales taxes, are also set to expire Dec. 31.
While the federal tax rates don't affect state tax collections, federal deductions could have an effect on how much income the state taxes.
State Tax Department spokesman Danny Forinash said the fiscal cliff - or any deal to avoid it - would have an indirect, trickle-down effect on state tax returns.
"We don't expect it to have an administrative effect," Forinash said. "In other words, it shouldn't affect how West Virginia collects taxes. It could affect adjusted incomes, thereby affecting amounts owed at the state level."
He said tax officials are watching whether Congress works out a deal to avert a significant drop in the alternative minimum tax, or AMT.
The AMT was originally designed to ensure wealthy families paid a fair share of taxes, but since the level at which the tax kicks in has not been properly adjusted for inflation, it affects more and more taxpayers each year.
The AMT is set to hit many West Virginians in the 2012 filing season.
The 2011 tax year AMT applied to individuals making more than $48,450 or joint-filers making more than $74,450. Unless Congress changes the law, the 2012 AMT level will fall to $33,750 for individuals or $45,000 for those filing jointly.
Most lawmakers want to avoid this drop in the AMT, but the change will not go into effect until there is a broader tax and spending deal.
As a result, tax officials expect many taxpayers to wait on filing their return until they know they won't be subject to the new tax.
The Internal Revenue Service will also need to know to print up new 2012 tax return forms.
Forinash said the release of those forms might be delayed because of the lack of action from Congress.
That, too, would lead to delays in state tax filings.
"Taxpayers are generally unable to complete state returns until they fully complete federal forms," Forinash said.
Contact writer Jared Hunt at firstname.lastname@example.org or 304-348-5148.