Tax Refund Delays IRS Backlog of Tax Returns Continues to Grow
Backlog of 35 Million Returns Is Delaying Tax Refunds This Year
The IRS has fallen behind in processing income tax returns this year and the agency currently has a growing backlog of millions of unprocessed returns. This means that millions of taxpayers are also experiencing delayed tax refunds.
According to the National Taxpayer Advocate (NTA), an independent organization within the IRS that focuses on taxpayers’ rights, the backlog has now reached 35 million tax returns. This is an increase from the backlog of 31 million returns the IRS had in May.
Why Is There a Backlog of Income Tax Returns?
The last year and a half has been unexpectedly chaotic, to say the least. In its Review of the 2021 Filing Season, the NTA explains how the COVID-19 crisis has had a major impact on the IRS’ operations. Essentially, “the combination of pandemic-induced shutdowns, three rounds of EIPs, challenges with paper return filings, a backlog of over 35 million suspended 2020 returns, and the responsibilities of implementing new legislation resulted in a challenging 2021 filing season for the IRS and tens of millions of taxpayers — one that will continue to be analyzed for lessons learned for future filing seasons.”
The NTA states, “The 2021 filing season was the quintessential definition of a perfect storm. No one could have predicted a global pandemic or the lasting and lingering impact to taxpayers, IRS employees, and tax administration during the last 15 months. To state the obvious, this filing season has been challenging for tens of millions of taxpayers and anything but normal for the IRS and its employees. The IRS endured challenges associated with the COVID-19 pandemic — its employees endured personal and professional challenges, which resulted in a historically high volume of unanswered telephone calls to its phone assistors and a historically low level of service. Millions of 2019 and 2020 paper returns were delayed and awaited processing, and tens of millions of returns awaited the atypical necessity of manual reviews — most still waiting for processing. Tax legislation was enacted at the beginning of and in the midst of filing season; a third round of stimulus payments was enacted and paid starting in mid-March; and changes were necessary to the IRS’s programming and systems to recalculate unemployment insurance benefits and Advance Premium Tax Credit benefits because of the March legislation. All this occurred while the IRS’s workforce was working remotely or within the constraints of its safety procedures and protocols put in place to protect employees, their families, and our local communities.
“In March 2020, December 2020, and March 2021, Congress directed and entrusted the IRS with the responsibility to administer critical programs designed to provide financial relief to struggling families and individuals and to boost the U.S. economy generally. Two of the rounds of economic impact payments (EIPs) were issued in the midst of an annual filing season. The COVID-19 pandemic has strained the IRS’s customer service performance, and its ability to adequately assist taxpayers continues to be negatively affected.”
On top of the additional stress placed on the IRS, taxpayers themselves have had to face a significant number of challenges during the pandemic. Each stimulus bill has included major tax implications, causing more individuals to have questions – but the strain on the IRS means that taxpayers have an extremely difficult time trying to reach an IRS representative to get answers.
Manual Processing vs. Electronically Filed Returns
Taxpayers are generally encouraged to electronically file (e-file) their income tax return because the IRS can process it faster. Paper tax returns take longer because they must be manually processed.
The NTA blog explains the current IRS backlog regarding manual processing:
“As of the end the 2021 filing season, the IRS had a backlog of about 35 million tax returns that require manual processing, meaning employee involvement is generally required before a return can advance to the next stage in the processing pipeline. The backlog includes about 16.8 million paper tax returns waiting to be processed; about 15.8 million returns suspended during processing that require further review; and about 2.7 million amended returns awaiting processing. In contrast to this filing season, in 2018 and 2019, pre-pandemic years, the IRS had a backlog of 7.4 million and 10.7 million returns, respectively, awaiting manual review at the close of the filing season.
“Of the 15.8 million returns suspended during processing, most were sent to the “Error Resolution System” for further review of specific items. Two of the most common items were “recovery rebate credit” (RRC) claims and Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) “lookback” claims. Although the majority of eligible taxpayers received their EIPs quickly and seamlessly, millions of eligible taxpayers had not received payment as of the beginning of the 2021 filing season. Taxpayers who had not received the full amount of EIP to which they were entitled were instructed to claim the missing funds as an RRC on their 2020 returns. The IRS had to manually verify many of these claims to ensure the amounts were correct.
“In addition, the IRS had to manually verify returns where the taxpayer elected to use 2019 earnings to claim the EITC or the ACTC. Because of changes to the tax law that took place late in 2020, the IRS did not have time to adjust its systems for the 2021 filing season to allow 2019 earnings to be systemically verified. The IRS Error Resolution System holds these returns in suspense until an employee can manually review the return and verify the RRC claimed on the return or the 2019 earnings for EITC and ACTC lookback claims.”
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