Possible Tax Refund Delays this Season

Last week, National Taxpayer Advocate Erin Collins gave her annual tax filing season report to Congress on the 2021 tax year.

With 77% of individual taxpayers receiving tax refunds last year alone, tens of millions of taxpayers saw delays in processing their tax returns. According to both the IRS and the Treasury Department, similar or even worse delays are expected to happen this year as well due to staffing shortages stemming from the COVID-19 pandemic and budget cuts, along with new tax relief measures.

Since last tax season, the IRS is still dealing with millions of unprocessed tax returns, particularly the ones that arrived on paper. Collins said before Congress, “Paper is the IRS’s Kryptonite, and the agency is still buried in it.”

With many taxpayers still waiting for their refunds from nine months ago, Collins’ report indicates that the IRS still has backlogs of 6 million unprocessed original individual returns (Forms 1040), 2.3 million unprocessed amended individual returns (Forms 1040-X), more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence.

While electronically filed returns are considered far better than paper returns, there have been millions of them suspended during processing due to discrepancies between the amounts reflected on IRS records and amounts claimed on the returns. Also, when a taxpayer disagreed with an error notice, their response went into the IRS’s paper processing backlog, further delaying the refund.

Collins’ report also stated that the two types of IRS help, “Where’s My Refund?” app and telephone service haven’t provided all the answers. The app doesn’t give information on unprocessed returns, and it doesn’t explain any status delays, the reasons for the delays, where returns stand in the processing pipeline, or what actions taxpayers should take, if any. For their telephone service, only about 11% of the 282 million calls were answered, having an average wait time of at least 23 minutes. From this, most callers could not obtain answers to their tax law questions, get help with account problems, or speak with a customer service representative about a compliance notice.

If you have any questions, please feel free to contact your trusted Scheffel Boyle team member. We will continue to monitor this as the 2021 filing season progresses. We are always here to help!