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 18th 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 year's 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.
"Because in order to move forward we need to get current."
For the IRS, it has meant putting as many resources and people as possible toward clearing out the backlog that built up in 2021.
For taxpayers, it can mean repeated efforts to try to get any IRS employee on the phone to answer a question or help straighten out 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 generally 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 pay high winter heating bills, 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 in paper returns in early February are still complaining that they haven't receive their refund cash.
"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 have a refund situation, you have to make a decision. Are you willing to wait?" Collins said.
"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.
The IRS has warned taxpayers that it can take more than 21 days to receive a refund, even if the return is electronically filed, when mistakes are made.
More:Average tax refunds higher than last year but paper headaches remain
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 was up 2.4% from the same period a year ago, based on the latest filing statistics.
Almost 75% of the returns the IRS expects to receive by April 18 were filed by April 8.
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 on their refunds 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."
Even so, Rettig said the IRS must work through an inventory backlog involving correspondence, amended returns and the processing of paper tax returns filed last year.
A "significantly higher error rate" last year triggered more delays and paperwork as millions of taxpayers who received stimulus payments in 2020 wrongly claimed they were owed more money through the recovery rebate credit on the 2020 returns.
Other issues triggered more paperwork as well, including a last-minute change in Congress relating to taxable jobless benefits for 2020 only.
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.
More:As April 18 tax deadline nears, many wonder how to file an extension
More:How zero is the magic number for e-filing some tax returns
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 of 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 the 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.
The IRS mailed Letter 6475 to explain the stimulus money received in 2021.
This year, Rettig said the IRS employed new tools to help its employees review and process tax returns that include errors and require manual reviews. The effort, he said, a is "already helping taxpayers receive refunds quicker in 2022."
He noted that the IRS is working through last year's backlog and issuing refunds for tax returns and amended tax returns in the inventory.
"We continue to consider and pursue additional relief measures while balancing the many other demands for our time and limited resources," Rettig said.
More:How zero is the magic number for e-filing some tax returns
More:Stimulus mistakes hit 2021 returns, and more reasons for late refunds
More:New parents, college grads get extra refund cash when they claim recovery rebate credit
IRS made some changes
After much public outcry, the IRS ultimately stopped mailing automated notices to taxpayers and demanding that another 2020 return be filed because the IRS had not received the first one. Some upset taxpayers said their check to pay taxes owed for 2020 was cashed a year ago but the IRS sent them a frightening notice in January.
Those notices were halted after tax professionals, taxpayers and the national taxpayer advocate complained about all the added confusion — and the fact that the IRS already had many of the documents being requested.
More:IRS cashed the check but asked these taxpayers to re-send returns
"Most of the notices that were causing challenges for people had to do with last year's tax return that were still sitting in the pipeline or the backlog," Collins told the Free Press.
Sending notices, of course, only would trigger more paper returns and responses from taxpayers at a time when the IRS was overburdened with last year's paper backlog.
On Feb. 5, the IRS announced that it suspended the automatic mailing of more than a dozen letters, including automated collection notices normally issued when a taxpayer owes federal tax or automated notices asking a taxpayer to file a tax return when the IRS has no record of the filing of the return.
"At some point, they will make a decision to turn the notices back on. But I don't anticipate it will be soon. I think it's many, many months down the road," Collins told the Free Press in late March.
Much will depend on how well the IRS will be able to deal with what's left of last season plus the millions of returns being added to the workflow this season.
Collins said the IRS is hoping to have processed all the leftover 1040s from last year by this summer.
More:The IRS is backing down from asking for selfies to verify identities
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. And experts say more needs to be done before next year's filing season.
Collins has encouraged the IRS to quickly implement a bar coding technology for paper returns by next filing season to move away from the "IRS’s archaic data intake process."
The 2-D bar coding has been used by state tax agencies, she said, for the past two decades to automate the processing of paper tax returns. Consumers often see such bar codes at the grocery store on individual packages.
"Paper return is still a challenge for the IRS and they need to automate the process," Collins said. "They need to make additional changes, not just hiring individuals but they do more automation or modernization of the process."
Why you don't want to file a paper return
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 the paper return to stamp it to show the date it was received, Collins said. Employees will pull out the checks for payment to get processed, sort the returns to separate the individual 1040s from business returns, and employees review the returns before any returns are transcribed.
Unique handwriting, for example, can create problems with some numbers, such as 7.
"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 will have to 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 that involves transcribing where an IRS employee has to type that paper return into the IRS's system.
All this takes extra work and time that slows down the process. Errors crop up along the way. About 22% of paper returns ended up with transcription errors, according to the Taxpayer Advocate Service.
More:IRS cashed the check but asked these taxpayers to re-send returns
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. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.