A pushed-to-the-limit Internal Revenue Service and perplexing tax rules are leaving millions of taxpayers waiting and wondering just when they’ll get their hands on much-needed tax refund cash.
For some early filers, the wait for a tax refund has been six weeks to eight weeks already — far longer than a typical wait of 21 days or less — after filing their 2020 income tax returns in February or March.
“Is the car going to break down before the money gets here?” asked Tonya Williams, 69, a Flint, Michigan, widow who is raising her two grandchildren.
The mother of her granddaughter died at age 38 in 2016. The father of her grandson is in prison. Her husband died in August 2020.
Unemployment tax break:Some filers may need to amend returns for tax refunds
“I pray a lot, let me say that,” says Williams, who adds that as a breast cancer survivor she knows it is essential to limit stress.
She’s babying the car as much as possible.
Her grandson Ja’Tavion Walker, 14, who lives with her, is getting a ride from his basketball coach until she’s able to afford repairs to the catalytic converter on her 2015 Cadillac SRX Sport Utility.
And fortunately, she hasn’t had to drive her granddaughter Don’Jhanaya Buck, 11, who also lives with her, to a long list of dance competitions elsewhere in Michigan during pandemic-related pauses.
“I’m their transportation. It’s me,” she says.
Her tax return was filed on Feb. 27 and she’s expecting to receive a 2020 tax refund of $5,522. The money would cover the estimated car repair of $3,000. But until it arrives, she’s hoping to delay fixing the car.
The official tax deadline of April 15 was extended until May 17 to reflect some of the challenges taxpayers and tax professionals continue to face during the pandemic.
Many people filed already, though, in order to claim a Recovery Rebate Credit to collect stimulus money that they’re still owed. Many don’t wait until the last minute because they depend on their refunds to pay big bills.
Some call tax season a ‘big mess’
The IRS received 100.9 million returns through April 9, down 3% from the year-ago timeframe. It processed 91.15 million individual tax returns through April 9, down 6.8% from a year ago.
At the same time, roughly 9.5 million fewer federal income tax refunds were issued through April 9 — a 12.3% decline — compared with the same time last year, according to IRS statistics. Through April 9, the agency hadissued 67.7 million income tax refunds — averaging $2,888.
Real-life challenges at the IRS include dealing with a COVID-19 related backlog of returns from 2019.
As of April 9, the IRS said it had yet to complete 1.5 million individual tax returns received last year but the IRS said those returns are in the “processing pipeline.”
“We are processing returns received over the summer and fall in 2020 due to the extended July 15, 2020, tax filing due date,” the IRS said.
IRS Commissioner Charles Rettig, who spoke before the Senate Finance Committee on April 13, said the 2021 tax filing season “continues to go smoothly.”
Not everyone agrees.
“It’s a big mess,” said Antonio Brown, a CPA in Flint.
As of mid-April, Brown said he had about 15 clients who continued to wait for their income tax refunds.
“They’ve been contacting me almost weekly,” Brown said. “And every time I check the IRS website it says that the refund is being processed and the refund date has yet to be determined.”
Most of the clients still waiting — 10 out of the 15 — claimed the Earned Income Tax Credit, which is designed to help low- to moderate-income workers and families get a generous tax break.
They’re “the very ones that need the refunds to help through these tough times,” Brown said.
Their refund money typically should have shown up by early to mid-March, given that the 2020 returns were filed electronically in February. The refunds ranged from $2,040 to as much as $12,569.
The taxpayer with the biggest refund owed had claimed the Earned Income Tax Credit, the additional child tax credit and the Recover Rebate Credit for a newborn in 2020.
Brown puts some of the blame on a long-understaffed IRS, adding that the emergency measures triggered during the coronavirus crisis only made matters worse.
“This whole pandemic has just flipped the IRS on its head,” Brown said.
Where to expect delays
Susan Allen, senior manager for tax practice and ethics with the American Institute of CPAs, said the IRS has issued guidance to tax professionals this year noting that in some situations it may take more than the typical wait of 21 days or less to issue any related refund.
Delays could hit returns such as:
- Tax returns that require a correction relating to the Recovery Rebate Credit — or what most people who aren’t tax professionals know as stimulus money.
- Tax returns where the IRS needs to validate information relating to the Earned Income Tax Credit or the Advance Child Tax Credit.
“Both the Rebate Recovery Credit and the EITC lookback provision require verification of information,” said Matt Hetherwick, director of individual tax programs for the Accounting Aid Society of Detroit.
Experts say the IRS has been working to develop improved fraud detection tools, which causes an additional review when a return gets caught by the filters.
“Some of these become manual reviews causing delays,” Hetherwick said.
A review by the IRS means that taxpayers will wait longer for refund cash for many 2020 tax returns.
H&R Block notes on its website: “If your return meets these criteria, the IRS will manually review your return, and it may take an additional 10 to 14 business days to receive your refund.”
Including current year returns, the IRS said that as of April 9, the agency had 16.2 million unprocessed individual returns in the pipeline.
Unprocessed returns, according to the IRS, include those requiring a correction to the Recovery Rebate Credit amount or returns requiring that the IRS validate the 2019 income used to figure the Earned Income Tax Credit and Additional Child Tax Credit on 2020 returns.
“This work does not require us to correspond with taxpayers but does require special handling by an IRS employee so, in these instances, it is taking the IRS more than 21 days to issue any related refund,” the IRS said in a statement.
The IRS is sending a letter that explains when a correction is made.
“The bottom line remains that we’re issuing more than nine out of 10 refunds in less than 21 days for those using electronic filing and direct deposit,” said Luis D. Garcia, an IRS spokesperson in Detroit.
The IRS noted that the agency is rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available.
“We are taking other actions to minimize any delays,” the IRS said.
Earned Income Tax Credit has new twist
The Earned Income Tax Credit is a potential spot for errors. The credit has been used by ID thieves who file phony returns, so the IRS must work to detect fraud.
This tax season, the Earned Income Tax Credit can be claimed on a 2020 tax return based on someone’s 2019 or 2020 income this year. The new special provision was put into place when the second COVID-19 economic relief package was signed by President Donald Trump on Dec. 27.
Many people who lost jobs or saw reductions in pay in 2020 would have received far less EITC money if they could not take their 2019 earnings into account.
Williams, who worked as a babysitter in 2019 but didn’t work in 2020, is able to use her 2019 income to claim the Earned Income Tax Credit on the 2020 return, according to Brown, who is her tax preparer.
Her tax situation is complicated by the fact that she’s now claiming her granddaughter as a qualifying dependent in order to receive stimulus money for the child.
Amended returns for 2018 and 2019 were filed to claim the granddaughter as a dependent.
Brown said Williams meets all requirements to claim her granddaughter and the girl’s father did not file a tax return to claim her.
“She can prove residency through school records,” Brown said. “No one claimed her on their taxes.”
Brown said the 2020 refund for Williams should have been issued by mid-March or late March. The amended returns might take longer but he’s seeing delays there, too.
The 2019 amended return was filed electronically and claims a $2,857 refund. The 2018 amended return — filed by paper, as required — claims a federal income tax refund of $2,346. So far, no refund money has been issued for the amended returns either.
She has received no information from the IRS.
Some taxpayers may have to respond to a letter that the IRS has mailed them, IRS Commissioner Rettig said in testimony, as the IRS attempts to verify some information.
But that process isn’t going smoothly for some.
“I keep getting letters from the IRS telling me to sign a form in order to get my 2019 refund because they had to audit my taxes and found an error. I have faxed once and mailed twice said letter,” said Christanine Brodis of Detroit, who filed her 2020 return in mid-February.
By April 19, she was still waiting for a tax refund for 2019 and another tax refund for 2020. She filed her 2020 return in mid-February.
IRS takes on more duties
The tax season is unlike any other.
The IRS has been handling rollouts for three stimulus programs since April 2020.
Now, the IRS is preparing to launch a way to send money each month to families who qualify for an expanded child tax credit. That effort is to begin in July.
In addition, the IRS is taking steps to automatically refund some tax money relating to jobless benefits money this spring and summer.
The follow-up refunds would apply to people who filed their tax return reporting unemployment compensation before the recent tax break for jobless benefits was put into place as part of the American Rescue Plan.
The first special refund payouts will likely be made in May, and they will continue into the summer.
A tax rule change that excludes a portion of jobless benefits from being included as income was signed into law March 11, roughly a month after the 2021 tax season began. Tax forms and tax software had to be updated after the season started to reflect the change.
Right now, the IRS said tax returns are opened in the order received.
“As the return is processed, it may be delayed because it has a mistake including errors concerning the Recovery Rebate Credit, is missing information, or there is suspected identity theft or fraud,” the IRS said.
“If we can fix it without contacting you, we will.
“If we need more information or need you to verify that it was you who sent the tax return, we will write you a letter,” the IRS said.
“The resolution of these issues depends on how quickly and accurately you respond, and the ability of IRS staff trained and working under social distancing requirements to complete the processing of your return.”
Tax returns reflect real life complications
Tax returns and tax refunds are complicated by real life situations — grandparents raising grandchildren, people facing sizable drops in income during the pandemic, divorces that can complicate who claims a child as a dependent, newborns in 2020.
The IRS stated in early April mistakes are being made with the Recovery Rebate Credit, which is a new credit on 2020 returns.
The IRS is mailing letters to some taxpayers who claimed the 2020 Recovery Rebate Credit and may be getting a different amount than they expected.
The IRS issued 2.5 million letters relating to issues with the Recovery Rebate Credit by early April. That was 10.4% of almost 24 million individual e-filed tax returns received that claimed this credit, according to Garcia in Detroit.
What’s complicating the delays, of course, is that many people can’t get answers about what’s holding up their money.
Alexandria Gale — who once spent 45 minutes on a call to the IRS where no one answered her call — said she doesn’t know why her tax refund is delayed. She hasn’t received any letters from the IRS.
Gale, 26, and her husband Phillip Caudle, 24, welcomed the birth of their daughter Willow in 2020.
She works for United Wholesale Mortgage in Pontiac. He works for Coca-Cola as a sales rep.
She used TurboTax to file their 2020 federal income tax return electronically on March 4. But more than six weeks later, they’ve still not seen an expected tax refund of around $10,000.
The couple is claiming a tax break for the purchase of solar panels.
And this year, they claimed the Recovery Rebate Credit in order to receive stimulus cash for their daughter. If a child was born or adopted into your family in 2020, you could end up with an extra stimulus payment for your new dependent.
The first stimulus program offered up to an extra $500 per qualifying dependent. The second stimulus program had a $600 cap.
So some parents of 2020 newborns could receive up to $1,100 extra when they file their 2020 returns if they did not receive that money earlier, according to Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.
The third stimulus program — which began rolling out money in March and is ongoing —offers up to $1,400 for qualifying dependents.
Perlman noted that the IRS is sending supplemental third stimulus payments — or what the IRS calls “plus up” stimulus checks — to taxpayers who are eligible for additional money based on information on their 2020 tax return.
If a taxpayer is owed money from the third stimulus, the credit could be claimed on the 2021 tax return, according to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
Gale and her husband, who live in Burton in Genesee County, plan to use the tax refund money to pay down debt and deal with the debt they took on to buy the solar panels.
“Obviously, they’re asking ‘Hey, where’s the money?’ ” she said, referring to the energy-related loan.
She felt everything on her return was pretty straightforward — they have W-2 income from their jobs, a Social Security number for the daughter, the return was e-filed.
“We got our state back already but we haven’t gotten our federal,” Gale said.
Follow Detroit Free Press personal finance columnist Susan Tompor on Twitter @tompor.