Taxpayers who filed their returns ahead of the deadline might be waiting awhile for a refund or stimulus payment. The Internal Revenue Service still has millions of returns to process from last year, and a new report warns the backlog could have a significant impact on taxpayers.
The agency hopes to get through the backlog of 2.4 million individual tax returns by the summer, IRS Commissioner Charles Rettig said at a recent hearing. But some people struggling financially with the pandemic have still not received last year’s refund, and those who ended up eligible for stimulus payments once they’ve filed for 2020 might be waiting a while to get them.
The coronavirus pandemic threw the agency a curveball in the middle of last year’s filing season, when the IRS already faced a number of hurdles.
The pileup mounted as the IRS temporarily shut down tax processing centers for as many as three months last spring and pushed back the filing deadline to mid-July due to COVID-19, according to a report released by the Treasury Department inspector general last week. When workers did return, processing centers were not always able to operate at full capacity because of distancing requirements and employees on leave. At the end of last year, the IRS had 11.7 million paper-filed individual and business returns it needed to process.
The IRS is also behind on communicating with taxpayers and other types of work the report reveals, and catching up may be disrupted if the agency has to issue more direct stimulus payments or close tax centers again because of the pandemic, according to the report. The delays have already cost the agency billions in interest on late refunds.
The IRS is already behind last year’s pace processing returns. IRS data shows 76 million individual returns had been received by March 19, down 9% from the 84.2 million returns filed by the same time last year. The number of returns processed is also down by more than 16%. As of March 19, 67.7 million returns had been processed. As of March 20, 2020, 81 million returns had been processed, right as the pandemic began.
Earlier this month, the IRS extended this year’s individual tax filing season by a month, from April 15 to May 17. But the move does not apply to all April 15 filing and payment deadlines, including estimated tax payments. While providing some relief to individuals, some lawmakers and organizations are calling for additional changes to streamline processes and prevent further confusion.
“The relief that the IRS gave really should be more of a holistic approach for the relief and they should really align all the tax filings and payments to May 17,” said Melanie Lauridsen, senior manager of tax policy and advocacy for the American Institute of CPAs. With all the moving parts, she said her organization has heard from members calling this tax season in particular “the absolute worst filing season” they’ve ever seen.
More changes this season has led to an increase in phone calls to the agency. The IRS commissioner said workers are spending three to four minutes more on the phone answering questions with each taxpayer who calls. The IRS website even has a message stating live assistance is “extremely limited at this time.” It directs taxpayers with questions about the stimulus package to call a separate number set up to handle questions about the Economic Impact Payments, which the agency is also handling. The IRS has sent out more than 434 million stimulus payments in the last year.
For those who received stimulus funds based on their 2019 income but would receive more based on their lower 2020 income, the IRS will go in and provide the difference.
Additionally, the American Rescue Plan makes the first $10,200 in unemployment insurance benefits people received last year is tax exempt, so for those who have already filed their taxes, the IRS will have to go back and apply the provision. The agency said it will go back and make those changes to returns and eligible taxpayers should not file amended returns.