Will Your Federal Tax Refund Be Delayed if the Government Shuts Down This Month?

Congress on Thursday voted to give itself till mid March to approve a $1.66 trillion federal spending deal, deciding to push back two budget deadlines again before funding runs out. 

The latest temporary spending bill will give Congress till March 8 and 22 to hammer out the details of this year’s federal budget. This is the fourth short-term funding agreement Congress has passed for fiscal year 2024, and if the two chambers still can’t come to a long-term spending spending agreement by the new March deadlines, many government agencies — including the IRS — could close down until Congress can pass a bill.

What happens to your tax refund if you file your taxes during that time? We can’t look back on what happened during a preceding government shutdown, since there’s never been a lapse in funding during tax season, but we’ll help explain what it could mean for you.

Here’s what we know about what could happen to the IRS in the event of a government shutdown in March. For more, here’s what happens to Social Security checks and other government benefits during shutdowns.

Why are we talking about a government shutdown?

The fiscal year budget for the federal government runs from the start of October one year to the end of September the next. In many years, Congress approves a series of appropriations bills to fund the government for another year before that fiscal year deadline or, if it misses the deadline, agrees to fund the budget short-term while it hammers out a long-term agreement. 

Last year, Congress was unable to agree on a budget by the end of September and passed a series of short-term funding bills to keep the government running while it worked on the budget. As part of the short-term funding agreement, Congress decided to fund some government departments (including Agriculture and Transportation) till March 8, and the remaining departments and services, including the Defense and Justice and financial services such as the IRS, till March 22. If we reach those March dates and Congress hasn’t funded the government yet, those parts of the government that have not been funded, by law, must temporarily shut down.

What’s the likelihood that the government will actually shut down in March?

It all depends on whether Congress can pass a federal spending bill, either for long-term funding through the end of the fiscal year or for additional short-term funding that buys the two chambers more time to reach an agreement. If the latter happens, it would only delay the budgeting process but at least give the IRS time to process the majority of tax returns.

Congress has passed four stopgap funding bills so far for this budget to avert a shutdown, so it’s quite possible Congress could act again.

Would the IRS completely close down during a shutdown?

Usually, during a shutdown, the IRS isn’t completely closed down. The agency typically leaves a skeleton crew behind with resources to make sure some of its critical processes continue to run, Tracey Spivey, a partner with accounting firm KPMG, told CNET. 

The hope is all IRS employees will be exempt from a potential shutdown, Spivey said, as has happened in the past. That said, it’s likely some parts of the IRS won’t be available during a shutdown. 

Thanks to the Inflation Reduction Act, essential IRS operations would continue during a government shutdown, and around one-third of its employees would be exempt from furlough. On the flip side, around 60,000 employees would be furloughed as a part of the US Treasury’s contingency plan. That could include the IRS Taxpayer Advocacy Service, which acts as a taxpayer advocate within the agency.

Will the IRS still be able to send out tax refunds (paper and digital) if the government shuts down?

The expectation is that electronic refunds should be processed as if there was no shutdown, as long as there are no errors, Spivey said. If the tax return has issues, it would be difficult to resolve those during a shutdown since trying to reach the IRS via phone calls at this time could be nearly impossible. 

For taxpayers filing a hard copy, they should expect a delay in receiving their refund during a shutdown. 

The IRS recommends filing electronically and setting up direct deposit to get your refund back within 21 days. If possible, we recommend filing as soon as possible before the potential government shutdown to avoid any delays.

How long could a shutdown delay tax refunds?

It’s hard to say until it happens. “We have not experienced a shutdown in the middle of filing season, so there’s some uncertainty there,” IRS Commissioner Danny Werfel told reporters in January.

The IRS is still playing catch up from the 2020 pandemic shutdown. “If we have another episode that delays the processing, it certainly compounds from the delays we were already seeing,” Spivey said. 

Are taxpayers still required to pay their taxes on time if the government shutdown lasts beyond April 15?

Yes, the tax filing deadlines are still in place even if there’s a government shutdown. Even if the shutdown goes beyond Tax Day, you’re still required to pay your taxes on time. If you don’t, you can expect penalties and late fees until you pay in full. 

We’ll update this story in the event of a government shutdown with more direction from the IRS.

For more, here’s why you should file your taxes as soon as possible and how to get your tax refund up to five days sooner than usual.