IRS backlog and drama won't end at midnight April 18
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Tens of millions of tax returns will flood the Internal Revenue Service now that the April 18 filing deadline is here. But the headaches of the latest tax season – and last year's leftover troubles – will linger in the months ahead.
"The IRS has to get current with not only prior years but this year's tax returns before they move into the next filing season without this albatross around its neck," said Erin Collins, the national taxpayer advocate.
For the IRS, it has meant putting as many resources and people as possible toward clearing out the backlog that built up in 2021.
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Long waits for refunds
For taxpayers, it can mean repeated efforts to get any IRS employee on the phone to answer a question or help with a problem. It means anyone who has filed a paper return this year risks ridiculously long waits of possibly six months or even nine months to receive an income tax refund.
The IRS has historically been able to process a refund within two weeks for an electronically filed tax return and up to six weeks for a paper tax return.
Hearing that something that once took six weeks can now take six months is simply shocking.
Refund delays create hardships for families who could use that money to cover escalating prices for food at the grocery store, put gas in the tank and, maybe, if they're lucky, buy a few new things for the house or take the children on vacation.
This, clearly, is not the year to file a paper return if you want fast cash.
Some early filers who mailed paper returns in early February are still complaining that they haven't received their refund.
"If they file through paper, unfortunately, taxpayers, they're going to go to the back of the line. The IRS is processing last year's returns first before they get to the paper returns this year," Collins told the Detroit Free Press.
"If you need that refund sooner, I would highly recommend that you file electronic," Collins said. "If there's not a problem with a return, those returns are sailing through. Typically those refunds are paid under that 21 day period."
Not all e-filed returns will generate quick refunds, though. Many taxpayers who e-filed will face delays if they've made mistakes, such as claiming more money for the recovery rebate credit when the IRS records show they've already received what they're owed. The IRS is checking the numbers for inconsistencies.
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IRS says 70 million refunds already issued
Just 10 days before the deadline for this year's tax season, the IRS already received 103.3 million returns through April 8. That's 75% of expected returns, and up 2.4% from the same period a year ago.
The IRS processed nearly 99.8 million returns – up 9.5% from a year ago.
More than 70 million refunds were issued through April 8. The average refund reached $3,175 – up 9.9% from a year ago.
Taxpayers can start checking "Where's My Refund?" to get updates at IRS.gov 24 hours after the IRS receives your electronically filed tax return, or four weeks after you’ve mailed a paper tax return.
Fewer glitches appear to have cropped up early in the season. IRS Commissioner Charles P. Rettig told the Senate Finance Committee April 7 that "the 2022 filing season got off to a strong start in terms of tax return processing and the operation of our information technology systems."
Wrong numbers for credits delay refunds
Taxpayers who waited until the last minute to file a return this year could be better off filing an extension if they're concerned that they don't have the accurate numbers for how much money they received for the stimulus payment issued in 2021 or for the advance payments for the child tax credit that went out from July through December last year.
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You want to take extra time to review both the recovery rebate credit and the child tax credit to avoid potential mistakes that could lead to long delays for your refund.
The IRS sent out more than 250 million letters to help taxpayers match their IRS records for the third stimulus payment issued last year and monthly payments for the advance child tax credit issued from July through December, according to Rettig's testimony.
The IRS mailed Letter 6419 to explain child tax credit benefits received in 2021.
It mailed Letter 6475 to explain the stimulus money received in 2021.
This year, Rettig said the IRS used new tools to help its employees review and process tax returns that include errors and require manual reviews. The effort, he said, is "already helping taxpayers receive refunds quicker in 2022."
Why you don't want to file a paper return
The paper backlog – and the clunky paper processing system – will drag out processing and delay refunds for taxpayers who filed a paper return this year. Experts say more needs to be done before next year's filing season.
Collins has encouraged the IRS to quickly implement a barcoding technology for paper returns by next filing season to move away from the "IRS’s archaic data intake process."
The 2-D barcoding has been used by state tax agencies, she said, for the past two decades to automate the processing of paper tax returns.
You're not exactly picturing an Amazon warehouse when you hear about the laborious steps that IRS employees must take when the paper returns arrive at the dock.
A sorter handles the envelopes, which slits open the top of the envelope. IRS employees take out the paper return to stamp it to show the date it was received, Collins said. Employees pull out checks for payments to get processed and sort the returns to separate the individual 1040s from business returns. Employees review the returns before any of them are transcribed.
Handwriting, for example, can create problems.
"It could look like a 7. It could look like a 1," Collins said. "They go through the entire return and mark it up literally with a red pen."
Sometimes, the IRS employee must review the math to figure out what the number is supposed to be. Sometimes, the IRS employee will compare the number in question to what's on the taxpayer's W-2 on file.
The review helps before the next step, when IRS employees type that paper return into the IRS's system. About 22% of paper returns ended up with transcription errors, according to the Taxpayer Advocate Service.
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The disruptions that took place during the pandemic only highlighted the inefficiencies even further — and drove up the argument for more stable funding for the IRS over the long run.
"The IRS has never faced the problems we were dealing with in the past two years," Collins said.
Fortunately, some may discover that this tax season could indeed be better than last, including a bigger refund thanks to new tax breaks and some IRS efforts to speed up the refund process. But that won't be the story for everyone.
As Collins says, if you're the one taxpayer who is facing months of delays, it's horrible.
ContactSusan Tompor via [email protected]. Follow her on Twitter@tompor.