Tax Refunds Delayed As May 17 Filing Deadline Arrives
(CBS Baltimore) -- The May 17 tax-filing deadline has arrived. In a typical year, a tax refund often follows a few weeks after submission, if not sooner. This is not a typical year. COVID and the policies to help fight its economic implications have put the Internal Revenue Service (IRS) far behind in its processing of tax returns. The backlog is likely to grow as filers rush to meet the upcoming deadline. And that could mean potential delays for tax refunds, particularly for those who file paper returns.
Where Does The IRS Stand?
The IRS came into the current tax season with millions of pending tax returns from 2019 and before. As with most office workers, many IRS employees have had to do their jobs from home for much of the pandemic. Paper returns, which sat in trailers awaiting processing, were inaccessible. As of March 5, the number of remaining returns received prior to 2021 totaled 2.6 million. A few weeks later that number had dropped to 2 million.
While the backlog of earlier-year tax returns fell, the backlog for 2020 returns rose. A recent blog post from National Taxpayer Advocate Erin M. Collins revealed the numbers. As of early April, over 8 million individual returns had been placed in "suspense status," pending review and manual processing. (Suspending returns does not tend to happen during a typical tax year.) Another 5.3 million paper returns from the last two years required manual processing, along with 4.7 million returns with errors and possible fraud issues and 11 million business and other returns. That 29 million total has increased to 31 million as the deadline approaches.
Changes To Tax System Haven't Helped
Many factors, most largely out of the IRS's control, contribute to the backlog. The Consolidated Appropriations Act, 2021, which included the $900 billion second stimulus package, contains a "lookback rule." That lets filers who qualify for the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) use their 2019 income to figure out the right amount on their 2020 return. The Act was passed just weeks before the onset of tax season. The IRS didn't have enough time to change forms and adjust computer systems. As a result, millions of forms have to be processed manually through their Error Resolution System.
Discrepancies with the Rebate Recovery Credit were also set aside for manual processing. This is the credit people can claim if they received less than they were eligible for in their first or second stimulus check. The Treasury Inspector General for Tax Administration has reported that about one-third of those who have claimed the Rebate Recovery Credit have had their forms flagged for review.
IRS Is Overworked And Underfunded
Since the start of 2021, the IRS has issued the second and third economic impact payments, better known as stimulus checks. The second, for up to $600, started going out at the end of December 2020, as part of the Coronavirus Response and Relief Supplemental Appropriations Act. The third, for up to $1,400, started going out in the middle of March, as part of the American Rescue Plan Act. The IRS began accepting tax returns on February 12. So the latest check was processed during tax season, its busiest time of the year.
Collins blog post also cites limited resources and technology issues as reasons for delays in processing tax returns. The agency continues to operate under many of the same limitations that have affected office workers the world over during the pandemic. That includes remote work, which can affect efficiency. The IRS is also understaffed and underfunded. Congress has continually reduced the agency's budget over the last decade; funding is down by about 21 percent.
An IRS watchdog informed Congress that budget cuts limit the agency's ability to keep up with technology and collect taxes. The agency has long relied on an old programming language called COBOL. That isn't necessarily a problem, unless the code isn't kept up to date. And the IRS hasn't kept it up to date. So when stimulus checks or changes to the tax code come along, the agency has to find and pay programmers to fix things. The IRS initiated a modernization effort in 2019, but it relied on future funding. President Biden is also looking to increase the agency's budget by $1.2 billion in the 2022 fiscal year. None of this seems likely to help this tax season, however.
What Should You Expect?
The IRS is anticipating a total of 160 million tax returns by Monday's deadline, with many of those still outstanding. As of the May 7, 85 million of the returns submitted led to refunds, typically amounting to about $3,000. Continuing delays in processing will likely mean longer wait times for tax refunds. Electronically filed tax returns generally take about 21 days, according to the agency. Paper returns take longer in a normal year, and the growing backlog will extend the timeframe even further.
Delays may be inevitable. So many manual reviews lead to added wait times. But electronic filing and eliminating mistakes on a return may be a filer's best chance to avoid them. If claiming the Rebate Recovery Credit, double-checking the amount(s) received in the first and/or second stimulus check can save time as well. Opting for direct deposit, rather than a paper check, for any refund will also help. "There is no guarantee the money is coming tomorrow," said Collins in an interview with CBS News. "They should plan accordingly for continuing delays."
Originally published on May 13 at 3:04 p.m. ET.
