A growing backlog of unprocessed tax returns is threatening to delay the arrival of tax refunds for many Americans. This comes as the IRS extended tax deadline of May 17 is just around the corner, and as many people are eagerly awaiting their refunds, including those people who are eligible for a refund for taxes paid on unemployment benefits that they received in 2020.
According to the Taxpayer Advocate Service, an independent organization within the IRS that advocates for tax filers’ rights, the IRS is currently holding 31 million returns that need to be processed ahead of Monday’s tax deadline day. This backlog has reportedly grown by over two million additional returns since the middle of last month. The problem is likely going to get worse before it gets better, with the IRS having received only roughly 121 million returns out of an expected 160 million.
The backlog appears to have several causes. First are the large number of unprocessed returns from last year’s taxes, which the agency was unable to process as a result of shutdowns to tax processing centers necessitated by the outbreak of COVID-19. Even when those centers reopened, they often did so at less than full capacity in order to comply with social distancing requirements.
Also hampering the IRS’ efforts to process tax returns in a timely manner are the added COVID-relief benefits that are included in this year’s tax returns.
The recovery rebate credit, which allows those people who did not receive all of the money that they were entitled to during the first two rounds of federal stimulus payments to claim any outstanding money that they are owed. The rebate requires that people accurately report the amount of money that they did receive so that the IRS can distribute the correct amount of outstanding money to them, but many people have been reporting inaccurate figures or have not been including the necessary documentation. This forces the IRS to spend additional time reviewing the return and collecting additional information.
Also delaying processing are other COVID-relief measures such as the earned income tax credit or the advance child tax credit. These credits require more scrutiny and verification of information, and the associated manual review results in longer processing times.
Beyond this, the IRS has also taken on the added responsibility of distributing the third-round of federal stimulus payments to eligible Americans. So far, the agency has distributed 165 million payments with a value of roughly $388 billion, and is now focusing on sending payments to those Americans whose eligibility for payments is dependent on the processing of their tax returns.
This includes those people about whom the IRS previously did not have sufficient information before they filed a 2020 tax return, as well as those people whose initial eligibility for a stimulus payment was based on information in their 2019 tax returns, but whose 2020 returns indicate that they are eligible for more money following a loss of income or a change in dependent status through what the IRS calls “plus-up” payments.