The pandemic and recent changes in the tax code are causing unusually long delays in distributing tax refund checks.
It’s May and many are checking to see when their refund check will arrive.
Stories like the following from one taxpayer, Mr. Schoenherr in Indiana are growing. According to a WSJ article, “In February, Mr. Schoenherr, a 72-year old retired credit-union executive living in Westfield, Ind., prepared and filed his return online, claiming a refund of about $8,000. On Feb. 16, he got a notice saying the Internal Revenue Service had accepted his return.”
“Since then, nothing.
“When he checks the IRS’s Where’s My Refund? tool, it says, “We cannot provide any information about your refund.” His phone calls to the agency have been rejected due to high volume. In April, he spoke with a representative from his online preparer, who said he had to contact the IRS. Also in April, he sought aid from his Congress member and filled out a form allowing staff to ask the IRS about his return.
“It’s crazy. I’ve been e-filing for more than 10 years and never had this trouble,” says Mr. Schoenherr.”
As mentioned, this is just one of the many stories circulating about tax refund delays. In fact, this appears to be happening for millions of 2019 and 2020 returns, a frustrating inability to reach the IRS by phone, and 260,000 notices saying taxpayers failed to file 2019 returns when they likely had, among other things.
Tax Preparers are Impacted
Tax professionals who generally have a dedicated phone line to the IRS are not getting responses. Issues that use to take a few weeks to resolve are now expanding into months-long communications.
IRS responds to questions by citing that they have been working with a reduced workforce in 2020 due to the pandemic. Also, the tax law changes that Congress enacted in March 2021are having to be applied to 2020 taxes. This is occurring after millions have already filed their 2020 tax returns.
Internal paperwork and checks have been shuffled between offices because of the IRS staffing issues adding to the delays in processing returns.
“This has been a challenging year,” IRS Commissioner Chuck Rettig said in testimony before Congress in April. “We greatly appreciate the patience and understanding of others.” He noted that the IRS’s call volume has more than doubled, to more than 1,500 calls per second at times.
There are many factors contributing to the processing of tax refund checks.
What Can Taxpayers Do?
This year might just be one of those years where patience is going to be required. The following are some recommendations from the IRS.
- Don’t call the IRS
According to data from the National Taxpayer Advocate, only about two of every 100 phone calls to (800) 829-1040 are getting through. Even then, the staffer often won’t be able to answer the question, especially if it’s about a refund. So calling the IRS is likely to be a waste of effort.<br/>
There’s a key exception to this advice for taxpayers who get a notice from the IRS asserting taxes due or requesting specific information. These letters usually give a number to call that’s different from the main 800 number, and the chances of getting through are far higher—especially for calls made early or late in the day and not on Monday, according to an IRS spokesman.
Don’t ignore these letters (see below), and a good place to start is on the phone.
- Understand tax-refund delays
Recently the IRS was still processing about one million individual returns filed last year, many of them on paper. (Not all of these filers were Luddites; the IRS e-file system can’t handle certain forms or documents.) These have to be keyed in by individuals, and the IRS is moving returns to different offices to get through the backlog.
The agency is also holding about 16 million individual returns filed in 2021—and refunds due on them. It must review each one to make sure filers correctly claimed recovery rebate credits if they got (or didn’t get) stimulus payments. It must also double-check child tax credits and earned-income tax credits for 2020.
This month the IRS will also begin issuing refunds to filers eligible for an exemption of up to $10,200 per recipient of 2020 unemployment pay that Congress enacted in March after many people had already filed returns. According to a spokesman, the process will begin with simpler returns before proceeding to more complex ones, such as for married couples. It’s expected to take several months to complete.
To find out about your refund, use the IRS’s “Where’s My Refund?” tool. If it has no information, check again in a week or so.
- Handle IRS notice letters with care
These typically say the filer owes more money to the IRS or request more information. In early February, the agency sent 260,000 such notices erroneously saying the taxpayers hadn’t filed 2019 returns when they had. On Feb. 18, it issued a statement that recipients should disregard these letters.
Except in this case, do not ignore these notices even if they seem incorrect. Instead, practice the tax equivalent of “defensive driving.” Call to discuss the issue if a special phone number is given, and make notes of the date and content of the conversation, including the IRS staffer’s name. Write the agency if requested, and respond to future letters even if that means sending a copy of a letter you have already sent.
Always send correspondence to the IRS via certified mail, and don’t lose the receipts.
- Know that advocates are trying to help
National Taxpayer Advocate Erin Collins has called for the IRS to communicate better with taxpayers so they aren’t in the dark. For example, she says the agency should release more timely information about the reasons for refund delays.
Ms. Collins heads the Taxpayer Advocate Service, an independent, effective unit within the IRS that aids taxpayers, often when they are facing dire economic circumstances (such as eviction) or are tangled up in red tape over a long period. This year TAS is hampered in its ability to help because many filed returns haven’t yet been entered in the IRS’s system.
- At least there will be interest on late refunds
For most tax refunds issued after April 15, the IRS will pay interest as long as the return was filed by May 17. How this works is complex, but interest will apply starting a few days after April 15. The current interest rate comes to about 3% annually, and the IRS plans to include interest payments with refunds.
The interest payments are taxable income on your 2021 return.