California Tax Refund Could Be Paid Via IOU

by Scott on February 2, 2009

This isn’t the game Monopoly where grandma would give you a written IOU if you couldn’t afford her red hotel on Park Place, this is reality in 2009 where a California tax refund could be paid via IOU. What does this mean for Californian’s? We could be receiving an IOU or note from the state government that will be paid when funds are available. How long could this take? We don’t know, as the state doesn’t have a budget and county workers are having to take unpaid leave in order to bridge the budget deficit. According to an MSNBC article, back in 1992 the State of California went through a similar IOU with state workers. In 1992 the workers were paid back the salary and it also included a 5% interest rate. Sounds good, right? My ING Orange account is only paying 2.4%. But wait, how will California’s pay bills that are due? You can’t write an IOU for your rent or mortgage. And last I checked, Costco doesn’t take an IOU either.

What are your options right now?

1. Hope that California passes the 2009 budget within the next few weeks.

2. California receives emergency funds from the U.S. Government.

3. You start or add funds to your emergency savings account.

4. Buy a California lotto ticket.

5. Borrow money from a relative to pay bills.

6. Charge bills to your credit card.

7. Ignore your bills.

8. Get an extra job or increase hours.

Of the choices above, the only one that I am counting on is #3 and #8. I’ll keep adding funds to my emergency savings account and continue to find ways to cut expenses each month. Trying to find additional sources of passive income will also help in the long term. I sure hope this budget mess is resolved quickly in California and we can again focus on growth.

You are probably also wondering why someone would provide a tax free loan to California and receive a tax refund. Well, some taxpayers would rather receive a refund than owe the state. Maybe you received some additional income or did not adjust your exemptions after having a child. If we receive an IOU from the state, I can guarantee that we will be updating our exemptions immediately.

What measures are you taking to ensure you have cash available through the tax refund season? Do you count on a refund each year?

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{ 5 comments… read them below or add one }

1 Jeff - StretchyDollar February 2, 2009 at 7:25 am

Man, what a bummer. You know things are bad when states can’t even pay their tax refunds. These are good proactive strategies for taking the edge off of no refund.

2 asithi February 2, 2009 at 11:35 am

Before I was married, I was able to calculate my taxes so that I owe about $100 or less when I do my taxes. Since getting married, I find that it is much easier to just get a refund. Yes, I am getting lazy. I hope they pass the budget soon. I am expecting at least $500 from the state.

3 Scott February 2, 2009 at 1:26 pm

@ Asithi

I just hate owing taxes, period. My goal is to break even or get a small refund for 2009 taxes. We should have planned better when we purchased our home and had children as we could have adjusted for that and saved a ton of money. Lesson learned for me, be more proactive.

4 Keith@DebtHacker February 4, 2009 at 6:02 pm

Just options #3 or #8?? But “7. Ignore your bills.” just sounds sooo tempting! Haha

5 Scott February 5, 2009 at 12:52 am

@ Keith

Ignoring the bills is very tempting, but bankruptcy is not a fun option. We have friends going through bankruptcy now and it’s not pleasant. The interesting thing about bankruptcy these days is that the attorney told them that they would probably be receiving credit card offers within 3 months. Now that’s just unbelievable.

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