The IRS is 'buried' in paper after 'most challenging' year for taxpayers. Why it matters for 2022 tax season.
Declaring that last year was the worst tax filing season ever for Americans, the national taxpayer advocate told Congress in a report Wednesday that 2022 could see a similar logjam of returns and refunds.
At a time when the IRS was charged with dispersing several rounds of federal economic relief to help Americans weather the COVID-19 pandemic, inadequate staffing, mounds of paperwork and a heightened workload made 2021 "the most challenging year taxpayers and tax professionals have ever experienced,'' National Taxpayer Advocate Erin M. Collins wrote in her annual report.
And 2022 might not be much better.
“While my report focuses primarily on the problems of 2021, I am deeply concerned about the upcoming filing season," Collins said in a statement. "Paper is the IRS’s kryptonite, and the agency is still buried in it.”
The IRS gave a similar warning Monday. The filing season will start Jan. 24, more than two weeks earlier than last year, because limited funding for the agency and an uptick in new COVID-19 infections could cause delays, the IRS said. The filing deadline will also be pushed back by three days, to April 18, because of a District of Columbia holiday.
Millions of unprocessed returns
By law, the Taxpayer Advocate Service, an independent resource for taxpayers within the IRS, must submit a report to Congress each year that notes the 10 most serious challenges for taxpayers. Those issues ranged last tax season from sluggish processing to the ways collection rules hurt lower income taxpayers.
By the end of 2021, the IRS had yet to process 6 million original individual returns, another 2.3 million amended individual returns, and over 2 million quarterly tax forms submitted by employers. That mountain of paper meant many of the 77% of Americans who get refunds still hadn't received them by late December, even though they'd filed their returns in April or shortly after.
TAX SEASON STARTS EARLIER, ENDS LATER:IRS: 2022 tax season set to begin two weeks early on Jan. 24
Now, as Americans prepare for the upcoming tax season, a third round of federal pandemic payments along with advance child tax credits that families began receiving in the latter half of 2021 could lead to another backlog that potentially delays tax refunds, the report said.
"The IRS is attempting to minimize discrepancies by sending notices to taxpayers who received (economic impact payments and advanced child tax credits) showing how much they received,'' the report says, "but millions of discrepancies, and math error notices, remain likely.''
Pandemic relief heightened workload
For the 2020 tax year, earned income tax credits were as much as $6,660, while child tax credits were as high as $2,000 per child. But by May 17 – the extended deadline for filing in the wake of the pandemic – more than 35 million tax returns were waiting to be looked over by IRS workers.
"Millions of taxpayers rely on the benefits from these programs to pay their basic living expenses,'' the taxpayer advocate's report said, "and when refunds are substantially delayed, the financial impact can range from mild inconvenience to severe financial hardship.”
WANT TO FILE YOUR TAX RETURN FOR FREE? TurboTax opts out of major program
SOCIAL SECURITY TIPS: We answer your questions on survivor benefits, earnings test, payroll taxes
The agency sent error notices to over 11 million taxpayers who claimed they did not receive some or all of the stimulus relief issued by the federal government in 2020, and when taxpayers challenged them, that further jammed up correspondence and IRS claims.
The IRS has dispersed 478 million pandemic-related payments worth $812 billion during the COVID-19 pandemic, as well as advance child tax credits totaling more than $93 billion to over 36 million households, according to the national taxpayer advocate.
But there hasn't been enough staff to handle the deluge, the report said. In the past 12 years, IRS staffing has dropped 17% while the amount of individual tax returns has risen by 19%.
Some of the other issues taxpayers experienced when they filed 2020 returns included:
- If you asked “Where’s My Refund?” the site couldn't always tell you. If your refund was on the way, the agency's "Where's my refund'' tool might have been able to help you track it. But it didn't have answers for those whose returns were waiting to be processed.
- Callers had to hold. And hold some more. The IRS received 282 million phone calls last year, the most ever, and three times the amount fielded in 2020, according to the national taxpayer advocate. But only 11% of those callers got through and they waited 23 minutes on average to speak to a customer service representative. “Practitioners and taxpayers have reported that hold times were often much longer, and frustration and dissatisfaction was high throughout the year with the low level of phone service,” the report said.
- Taxpayers responded, but refunds still languished. Taxpayers may have to respond to IRS queries ranging from requests to prove their identity to questions about figures on their returns that don't match stated amounts on 1099 forms submitted by those other than their employer. The agency got 6.2 million replies to its queries, but typically took 199 days to process them, as compared to 74 days in 2019.
Improved technology, more simplicity
The taxpayer advocate's report offered numerous recommendations to improve IRS efficiency. tThey included incorporating technology that can read returns, enabling e-filers to communicate with the IRS via secure email and giving better updates about delays on IRS.gov.
The report also suggested 68 actions for Congress, such as boosting funding for the IRS, simplifying the earned income tax credit and allowing the IRS to set minimum standards for those who prepare tax returns to reduce mistakes and increase competency.
Follow Charisse Jones on Twitter @charissejones