Receiving Tax Refund Late? Here's What You Have To Know!

Receiving Tax Refund Late? Here's What You Have To Know!

 

You are not alone. We have been hearing from clients who are still waiting on refunds from returns filed early in the year. In normal times, unless there is an error, the IRS will issue most refunds in less than 21 calendar days. However, 2021 is far from being a normal year for a number of reasons.

 

See Relax Tax’s Amending a Tax Return at relaxtax.com/debtreview

 

COVID-19 – Unlike most other employers that had to deal with the COVID-19 outbreak, IRS employees could not work from home because the computer system can only be accessed from IRS facilities. Thus, during 2020 and 2021 many IRS employees were furloughed. And the IRS got significantly behind in processing returns, especially paper-filed returns that must be input manually.  As a result, the IRS was still processing 2019 returns at the beginning of the 2020 return filing season. 

 

Economic Impact Payments – Congress ordered the IRS to handle the task of issuing three economic impact payments, two in 2020 and one in 2021, tapping IRS resources. 

 

Recovery Rebates – To make matters worse, those first two economic impact payments had to be reconciled on the 2020 tax return, and if a taxpayer didn’t receive the amount they were entitled to, they were allowed an equivalent recovery rebate credit on their tax return.   

If there is a discrepancy between the amount of the payments reported on the tax return and what the IRS has on file for the economic impact payment amounts, the IRS is manually verifying the tax return for credit eligibility, which is delaying refunds. 

 

 

See this related post from Dennis Harabin:  What if I Missed Something on My Tax Returns?
Failing to report an item of income will most certainly generate an IRS inquiry, which typically happens a year or more after the original return was filed and after the interest and penalties have built up. On the other hand, if you have a refund coming, you certainly don’t want that to go by the wayside.
 

 

Unemployment Debacle – In March, 2021, Congress, after the 2020 tax filing season had gotten underway and millions of taxpayers had already filed their returns, decided to make a portion of the unemployment compensation taxpayers received in 2020 tax free. The IRS, in order to avoid millions of amended returns from being filed, has undertaken the task of automatically adjusting those returns and issuing refunds. 

 

Using 2019 Income to Compute 2020 EITC and Additional Child Tax Credit – The EITC and the additional child tax credit are based on a taxpayer’s earned income (income from working). However, because a preponderance of those who normally benefited from EITC and the additional child tax credit were unemployed during 2020, Congress allowed the 2019 earned income to be used in computing those credits for 2020, which also is causing processing delays.

 

Other Issues – Other issues that cause delays in disbursing refunds include returns that are filed with missing information, those affected by identity theft and fraud, those filed with an injured spouse allocation on IRS Form 8379 (which can take a minimum of 14 weeks to process) and returns that warrant further review for other reasons.

 

You can use the IRS’s online tool “Where’s My Refund” to determine the status of your refund. To use that tool, you will need:

  • Social security number or ITIN
  • Your filing status
  • Your exact refund amount

Generally, the IRS will pay interest on the refund due you starting from the later of the date:

  • The return was filed.
  • The return is received by IRS if it was filed after the due date.
  • The IRS received the return in a format they can process.     

 

 

See this related post from Dennis Harabin: 15 Most Commonly Encountered Tax Penalties That YOU Can Avoid
 In addition to any other penalties, the law imposes a $5,000 penalty for filing a frivolous return – one that does not contain information needed to establish the correct tax or that shows a substantially incorrect tax because the taxpayer takes a frivolous position or displays a desire to delay or interfere with the tax laws. This includes altering or striking out the preprinted language above the space where the taxpayer signs. Under limited circumstances, the IRS may reduce the penalty from $5,000 to $500.

  

 

 

The IRS stops paying interest on overpayments on the date they issue the refund or it is used to offset an outstanding liability.

Currently, the interest rate the IRS pays individuals on overpayments is 3%; the rate is adjusted quarterly but has been at 3% since July 1, 2020.

Exception: No overpayment interest is paid if the IRS issues the refund within 45 days of the return due date, or actual filing date if later.

 

 

See this related post from Dennis Harabin: Be In the Know: The Reason Why Your Tax Return Is Delayed
The prompt means that the IRS has received your return, but due to Covid-19 delays, the IRS is experiencing a considerable backlog, slowing processing times and disbursements. Typically, the IRS processes tax returns and issues refunds within 21 calendar days of receipt. The IRS even stated in January communicating the 21-day time frame. Add in the pandemic-related tax changes and child tax credit advances, and this tax season is more complicated than ever.
 
 

As you can see, refunds are not being issued as quickly as they were in years prior to COVID and there is not anything a tax preparer or taxpayer can do about the IRS not paying out refunds once a return is electronically filed and accepted by the IRS. 

Please give us a call at 551-249-1040 for assistance.

 

Dennis Harabin at Relax Tax is an expert in taxes, insurance, and debt. Contact him today!

 

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