State refunds on hold

Monday March 15, 2010
Posted 3 p.m. Eastern

Yes, I know I harp about adjusting your withholding so you won't get a big tax refund each year. Better you than the government have use of your money year-round, interest-free loan to the tax collector, blah blah blah.

And I hear back from people who say that with interest rates so low, they don't care. They prefer the forced savings account that over-withholding provides.

Well to those folks, I say rethink your tax plans, especially when it comes to getting a refund from your state department of revenue.

When California issued IOUs instead of tax refunds, everyone just chalked it up to the craziness of that state. Now six states -- Idaho, Hawaii, Alabama, North Carolina, New York and Kansas -- are postponing processing and delivery of refunds to their residents.

The reason is simple. The states are facing serious budget crunches. And there are more than six states in trouble, as the recession continues to wreak havoc on state revenues nationwide. So don't be surprised if your state joins the refund hold list.

In fact, Hawaii's governor wants to push off refunds until July. This is an old accounting trick. Gov. Linda Lingle knows that by waiting until mid-summer, the money will then be posted against next year's fiscal budget. The move would save the Aloha State $275 million on paper.

Hawaii's Democratic lawmakers, however, are calling the Republican governor out by introducing legislation that would prevent such income tax refund delay tactics.

Under current law, Hawaii can pay a tax refund 90 days after the return is received or 90 days past April 20 (that's the state's annual filing deadline), whichever is later.

The proposal that's passed the Hawaiian House and is pending in the Senate would require the state to provide refunds within 90 days of the filing of a return.

Of course, if all those Hawaiian taxpayers who might be waiting until July for their money had simply had their withholding more accurately reflect their tax bill, they wouldn't be in this predicament.

In fact, the best move is to owe both the federal and state tax collectors a little something each year, say $100 or less. That way they are they ones who have to wait on you to pay up and not vice versa.

And if you want to check with your state's tax department about the status of your refund, you'll find that contact information in Bankrate's state tax directory pages.

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