Before the COVID-19 pandemic, the IRS was getting refunds out swiftly and responded to calls and correspondence in a reasonable amount of time. However, COVID-19 brought about a perfect storm of delays, initially caused by employees having to stay home because lockdowns prevented processing centers from operating and workers from going to their offices. And in most instances, IRS employees could not work from home because of the secure nature of their tasks and the IRS’s computer system.
See Relax Tax’s Tax Audit Assistance at relaxtax.com/audit
Congress also heaped more work on the IRS by making the service responsible for distributing the economic recovery payments (stimulus payments), not just once but three times. Plus, Congress made retroactive tax changes, which required the IRS to modify already filed tax returns. Bottom line: it has been a rough couple of years for the IRS, and it is taking a long time for them to catch up.
More recently, Congress mandated paying eligible taxpayers 50% of their child tax credit for 2021, estimated based on the 2020 return information, in six monthly installments from July through December, placing an additional burden on IRS resources.
For those who hadn’t filed their 2020 return yet, the third economic recovery payment and the advance child tax credit payments were based on their 2019 tax return. But as people filed their 2020 returns, the IRS needed to recalculate the amounts of the payments so that taxpayers weren’t shorted. These do-overs take away time that otherwise could be spent working through the backlog of correspondence and amended returns for prior years and processing the 2020 returns being filed on extension.
See this related post from Dennis Harabin: Avoiding IRS Tax Underpayment Penalties
Congress considers our tax system a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.
One of the IRS watchdogs, National Taxpayer Advocate Erin Collins, applauded the IRS in her mid-year report to Congress for processing most returns in a timely manner and issuing most of the economic recovery payments despite all of its added responsibilities.
According to the advocate, the IRS did not have time to adjust its systems for the last-minute Dec. 27, 2020, legislation that made changes for the 2021 filing season. This required the IRS to manually verify the returns for which the taxpayer elected to use their 2019 earned income to claim the 2020 earned income tax credit or the additional child tax credit. Unlike prior years, the IRS had to deal with a large volume of returns requiring manual reviews. At the end of the 2021 tax season, the IRS had over 35 million individual and business returns backlogged.
But the IRS is chipping away at the logjam. As of the end of July 2021, the backlog was down to 13.8 million returns.
See this related post from Dennis Harabin: An Advisory for All Entrepreneurs: IRS Crisis Arises
For several years now, the IRS has required payments made to merchants through various marketplaces, payment processors (credit & debit cards), and third-party settlement organizations (TPSOs) to be reported on Form 1099-K. The purpose being to uncover merchants that do not report all of their income by comparing the 1099-K amounts to the amount reported on the individual’s or business’s tax return and following up with the under-reporters by correspondence or by audit.
So, if you are caught up in the gridlock, not much can be done except to be patient. But there’s some good news – if the IRS owes you a refund that’s been delayed, they’ll likely pay you interest at the annual rate of 3%.
There are not enough IRS employees to field all the calls about “Where is my refund?” or other issues, and anyone who does get through on the phone is lucky. Most spend hours on hold and never get through.
We are not trying to make excuses for the IRS but just letting you know what the problems are and that it may be a bit longer for them to catch up. Let us know if we can help. Feel free to contact our office at 551-249-1040 to talk things over.
Do you have some questions? Dennis Harabin at Relax Tax can answer them!
Recommended Readings:
- The Obscure Research Credit
- Helpful Advice When Selling or Buying Real Estate
- The Benefits of Filing a Tax Return
- Retain MORE of What You Earn So You Can Pursue Your Passion
- Tax Credits You Might be Missing