Recent Report Highlights IRS Hiring Challenges, Antiquated Equipment and Inefficient Practices…Expect Processing Delays

The IRS is not immune to the current staffing challenges facing the country. In a recent report, the Treasury Inspector General found that these problems caused the IRS to face an unprecedented backlog of unprocessed tax returns heading into the 2021 filing season. The IRS usually carries over approximately 1 million returns into the new filing season; that number is closer to 24 million for the current season according to a recent report by the Taxpayer Advocate. Continued processing delays are expected while the IRS and Congress work to resolve these concerns.

Congress Concerned by IRS Delays

Nearly 10 million tax returns remain unprocessed by the IRS as of early December 2021. This is worrying members of Congress who say the delays are “causing significant and unnecessary burdens for families and small businesses who can’t get answers from the IRS about why their tax returns have not been processed. The IRS is in danger of falling into a vicious backlog cycle that will harm millions of taxpayers.”. Members of Congress requested answers to various questions including what is the IRS’s plan to process these backlogged returns before the next filing season, what steps are they taking to avoid this issue in the future, and their general hiring plans. The letter can be read here.

Key Tax Credit Information Will Be Provided by the IRS to Aid in Preparing 2021 Tax Returns

Taxpayers that received Economic Impact Payments (AKA Round 3 stimulus checks) and Advanced Child Tax Credits in 2021 will soon receive correspondence from the IRS with information regarding the payments that were made. These letters, expected to be mailed in December 2021 and January 2022, will be key to preparing 2021 tax returns. Please retain them with your other important tax documents and submit them with your 2021 tax return information. The IRS announcement can be read here.

IRS Issues FAQs for 2021 Child Tax Credit and Advanced Child Tax Credit

The IRS recently updated their Frequently Asked Questions for the 2021 expanded Child Tax Credit and Advanced Child Tax Credit to help explain the how these credits will impact 2021 tax returns. The FAQs can be read here.

Child Tax Credit Updates

The IRS will begin issuing advance checks to taxpayers that they believe will qualify for the new child tax credit advances in 2021.

The IRS has posted a great FAQ here to answer most questions regarding this new additional credit.

You can determine your eligibility for these credits using the IRS tool here.

Your eligibility will be based on your actual 2021 income and dependents, therefore you may qualify based on 2020 income and dependents, but fail to qualify in 2021 if your income increases or there are changes in dependents.
If you receive advance payments under this program, but ultimately do not qualify due to income or dependent changes, the advances will need to be repaid with your 2021 tax return.
Therefore, if you do not expect to qualify for the higher credits in 2021 due to one of these reasons, or if you could be on the threshold of qualifying, you should opt out of receiving the advance credits to avoid having to repay the advance credits with your 2021 tax return.
You can elect to opt out of the advance payment program here.

Should you opt out of the advance credits, but ultimately qualify based on your 2021 income and dependents, you will receive the credits on your 2021 tax return.

Waiting For Your Refund? You’re Not Alone.

The IRS continues to experience delays in processing returns and the related refunds. Taxpayers can check the status of their refunds here, but many times the result will be that the return is processing. A call to IRS will provide the same information until there is an update to the file in the system. From a lack of toner and ink for printers in IRS offices to the backlog of 2019 tax returns still in inventory for processing, there are many reasons for these delays. 2020 tax returns brought more causes for delays, one of which is the Rebate Recovery Credit that allowed taxpayers to claim their stimulus payments on their 2020 tax returns if they did not receive one in the mail or electronically when the stimulus payments initially processed. A recent Treasury Inspector General report indicates that returns with mismatches between IRS stimulus payment records and amounts claimed on the taxpayer’s return require a manual review by an examiner; this will cause significant delays in processing as millions of returns are already in that ‘waiting for review’ status. While the IRS is hiring and trying to remedy the processing lag, it could be some time before all returns that they have received are processed as they continue to implement the new expanded child tax credits recently enacted by Congress.