State Tax Refund Delays Hit Millions Amid Staffing, Software, and Law Changes
Millions of Americans anticipating swift tax refunds this year are encountering prolonged waiting periods, and the issue extends beyond the Internal Revenue Service. Numerous states are grappling with processing their own income tax returns due to significant tax law revisions, staffing deficits, and persistent software complications.
Five Regions Experience Significant Delays
At least five jurisdictions—Idaho, New York, Oregon, South Carolina, and Washington, D.C.—are currently facing substantial delays in issuing state tax refunds. State refunds are managed through systems separate from the IRS, meaning technical problems or legislative adjustments can decelerate payments even when federal refunds proceed normally.
Idaho is among the most severely affected. Budget reductions have resulted in fewer temporary staff to handle the seasonal influx of returns. Officials caution that processing times could extend from 12 to 24 weeks, potentially postponing refunds by up to six weeks. Additionally, the state delayed adopting new federal tax changes until mid-February, necessitating last-minute updates to software and forms after many residents had already filed.
In New York, delays are partly linked to glitches in third-party tax software. Providers such as TurboTax and H&R Block must update their systems to comply with new state laws, including the New York LLC Transparency Act. These updates can sometimes introduce bugs or temporary blocks on electronic filing. Experts advise frequently checking for software updates before submitting returns.
Oregon and South Carolina Face Distinct Challenges
Oregon is confronting a different obstacle. State officials report that paper returns will not begin processing until late March because they did not receive essential federal data in time to program their systems. While electronically filed returns may still progress more quickly, this delay could leave some taxpayers waiting weeks longer for their refunds.
In South Carolina, the issue arises from discrepancies between state and federal tax rules. The state's tax code does not align with several recent federal tax breaks, requiring taxpayers to manually adjust their state returns to exclude deductions permitted at the federal level. This additional step has confused tax software and led to amended filings, which take longer to process.
Lawmakers in the South Carolina House of Representatives are attempting to harmonize the state's tax code with federal changes, which would enable residents to claim new deductions—including those on tips and overtime—on their state returns. However, disagreements between the House and Senate have created uncertainty about whether these changes will be implemented this year.
Washington, D.C., and Broader Implications
Although Washington, D.C., is not a state, approximately 361,000 residents there are also ensnared in delays. A legislative debate over whether to adopt new federal tax provisions mid-season has left forms and systems in a state of flux, with some filers potentially needing to refile once updates are finalized.
For taxpayers in these areas, officials and accountants recommend electronic filing whenever possible and double-checking that tax software is fully updated before submission. These delays occur at a time when refunds are especially crucial for household budgets.
According to a February 26 update from the IRS, the average refund so far this year is $3,742, up from $3,382 at the same point last year—a 10.6 percent increase. Much of this anticipated rise stems from President Donald Trump's 'One Big Beautiful Bill Act' (OBBBA), enacted in July 2025. This law reduced taxes for the 2025 tax year, expanded the standard deduction, and introduced new deductions for tip income and overtime pay. To date, the agency has issued over $136 billion in refunds for the 2025 tax year.
However, another change may affect the speed at which some taxpayers receive their money. The Treasury has largely discontinued issuing paper checks as part of an initiative to modernize payments and curb fraud. The government is gradually transitioning toward fully electronic payments to and from the IRS, including tax refunds, which could influence processing times for those accustomed to traditional methods.
