Patience is in order if awaiting tax refund this year

If you are expecting a tax refund this year, you may have to wait a bit longer than usual.

Between staff shortages, a backlog of returns from the 2020 filing season, processing Recovery Rebate Credits, validating income for the Earned Income Tax Credit and Additional Child Tax Credit – not to mention applying changes in accordance with Covid-relief legislation like the American Rescue Plan Act – the IRS is advising taxpayers that tax refunds will be delayed.

The Treasury Inspector General for Tax Administration reported this month that more than 8.3 million individual tax returns and transactions still needed to be processed from the end of 2020 – a 1,200% increase in the number of paper tax returns carried over from the prior year compared to normal – i.e., non-Covid – years.

The IRS stated that as of April 30, it had 17.1 million unprocessed individual tax returns in the pipeline. These include those showing inconsistencies between the IRS’s records on stimulus checks paid and the recovery rebate credit reported on some 1040s, plus returns with other errors or potential fraud issues. This is in addition to 11 million business and other returns that are delayed.

Compounding this workload, the IRS is coordinating 470 million stimulus payments to individuals, many of whom were not in the system, and apply tax law changes for 2020 that were enacted at the end of March 2021.

The capstone is the IRS is working with a reduced workforce trying to catch up from offices being closed for several months in 2020 due to the pandemic.

The bottom line is that patience is in order if you are due a tax refund. The IRS “Where’s My Refund?” tool is a good place to check, but it too may be experiencing lag times. One silver lining to a delayed refund is that the IRS must pay interest on any refunds that are not issued within 45 days of April 15 as long as the return was filed by May 17.

Tax refunds are not all that are taking longer than usual. Amended returns are also behind schedule. The IRS is reporting that amended returns will take up to 3 three weeks after they are mailed in to show up on the system. Processing can take up to 16 weeks.

Finally, with so much backlog, mistakes are to be expected. For instance, the IRS erroneously sent 260,000 letters to taxpayers stating they had not filed their 2019 returns. If you should receive a notice from the IRS stating you have not filed your return or that they need more information, please contact our office immediately.

For more about the IRS disruptions and what to expect, please visit the IRS’s website here.

Patricia Herrera, EA, is a Specialist with our Business & Tax Advisory Group. She can be reached at pherrera@antarescpas.com.