The IRS recently announced that there will be processing delays for some federal tax returns. This delay will affect taxpayers who itemize deductions and those claiming the Higher Education Tuition and Fees deduction or the Educator Expense Deduction. The IRS processing delays affect all tax preparation methods and include both e-filed and paper returns.

There is good news though!

You don’t need to wait to file. TurboTax is up-to-date with the latest tax law changes and forms and will help you file your return now, so you can be done with your taxes. We’ll hold your return and submit it to the IRS when they begin accepting returns in February. TurboTax will send you an email confirmation when your return has been successfully transmitted and accepted by the IRS.

Update: IRS announced they will begin accepting delayed returns Feb. 14

Will My State Return be Affected by the Processing Delays?

We’ve gotten several questions asking if the IRS delay will affect state tax returns. TurboTax is working closely with the state Departments of Revenue to help our customers affected by IRS delays get their state tax refunds as quickly as possible, even if their federal refund is delayed.

Here is the latest update for TurboTax customers (this info could change, so continue to check back):

If your state is on this list, there are no anticipated processing delays for your state return when filing with TurboTax! You can prepare and e-file your federal and state tax returns now with TurboTax and get your state refund in as little as 8 days with direct deposit (time varies by state), even if the IRS does not process your federal return until February.

Arizona

California

Colorado

Connecticut

Delaware

District of Columbia

Georgia

Hawaii

Idaho

Illinois

Indiana

Kansas

Kentucky

Louisiana

Maine

Maryland

Michigan

Mississippi

Missouri

Montana

Nebraska

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

South Carolina

Utah

Virginia

West Virginia

Wisconsin

If your state is on the short list below, your state is also currently anticipating processing delays for some 2010 tax returns. You don’t need to wait to file though. TurboTax will hold both your federal and state return until the IRS and your state begins accepting them so you can do your taxes now and be confident that you will be getting your refund as fast as possible.

Alabama

Arkansas

Iowa

Minnesota

Vermont

If you don’t see your state on this list, check back. We will be updating these lists real time with confirmations from the remaining states and any changes to the current list.

Let’s start with a nice and responsible move – paying off a high interest credit card. Even with general rates so low right now, 18% interest on a credit card is still common. $3000 sitting on such a card will double in 4 years, so now’s the time to get one of your New Year’s resolutions going and use that refund to pay off some debt.

No credit card debt? Congratulations. Why not use that refund to jump start your retirement savings? If your employer offers a 401(k) match and you’re not taking advantage to get the full match, now’s the time. If you don’t get any match, it’s time to fund your IRA, whether you choose Roth or Traditional.

Feeling really nice? Year-end is when many decide it’s Charity Time, but of course, charities have expenses year round. We live in one of the richest countries in the world, but there will always be those who are less fortunate to whom we can lend a helping hand. $3000 can go a long way to helping those in need. The $25 checks add up, but most charities pay special attention to the $1000 and above donors. If you’re in good financial shape, now’s a good time to be a big shot for a good cause.

On the naughty side, I found that one could spend over $400 Shopping for the most expensive possible dinner for two at Whole Foods. Nothing like a romantic dinner for two at home, and with your refund, you can plan one of these nearly 8 times over the year ahead.

Better still, if you want to stay entertained every night, a 60 inch Sony LCD TV is currently selling for $2000, add a TiVo Premiere ($340 for the first year), a Netflix account ($120) and you’ll still have $576, enough for an iPad to control it all, and a year’s supply of popcorn.

However you decide to spend this money, remember one thing – this isn’t a windfall from the IRS, it’s money that you earned and had withheld from your paycheck. You’ve just lent the government this money at zero interest. Time to head over to the IRS site and check out their Withholding Calculator which will give you the details you need to update your Form W-4 to request your employer hold back a bit less. This year, you’ll just have to save up the old fashioned way, doing it yourself.

The state of New York is also considering holding tax refund money in an effort to help relieve the state’s $1.4 billion budget deficit.

In all cases, states are advising taxpayers to go ahead and file early since refunds will be processed on a first in-first out basis. E-filing with direct deposit is still the quickest and easiest way to get your tax refund back.

You can check back here to see if other states are expecting similar delays.

States Delaying Refunds:

Hawaii

North Carolina

New York

Alabama

Pending:

Oklahoma

Idaho

Kansas

Earlier in the tax season, California refunds were delayed. Taxpayers didn’t get any IOUs; California was just saying the checks were late. (I filed my California return the last week in January and didn’t get the refund until mid March.)

The State of California is sending IOUs to taxpayers.

Starting July 2nd, California taxpayers are getting IOUs, also known as a registered warrants, in place of their tax refund checks.  The IOU is not redeemable until October 2, 2009 however there will be 3.75% annual interest included with the redemption. Originally some large banks were offering to accept the IOUs now at full value.  Then they would redeem the IOU in October and get the interest too. However it sounds like many of those banks have changed their minds.  I hear it’s a good idea to check Credit Unions; seems they may have agreed to accept the warrants.

For “everything you wanted to know about CA IOUs and we afraid to ask”, check out this latest TurboTax article “California: Now Issuing IOUs for Income Tax Refunds.”