The third tax-filing season to happen during the Coronavirus pandemic is quickly approaching. This is likely to come with yet more frustration and uncertainty for taxpayers and tax preparers.
Some things will return to normal this year. The individual tax deadline will return to its usual mid-April date, for the first time since 2019. Additionally, the IRS has stated that it has steadily been reducing its backlog of returns from 2020. However, the IRS is facing additional challenges on top of all this leftover paperwork from the previous year. These include the problems of retroactive legislation, and pandemic-specific changes in tax laws. These changes will require extra attention from taxpayers. “The IRS is going to start the filing season in a hole,” says Erin Collins, the leader of a taxpayer advocate group within the IRS.
The IRS is Still Processing Returns
In late December, the IRS stated that they were still processing returns received before April of 2021. This is because they needed to make sure they didn’t require special attention or contain any errors. This meant, however, that the IRS still had 6.3 million unprocessed individual returns as of December 18th. Additionally, they had near 2.3 million amended tax returns to process. The agency also stated that those amended returns occasionally take 20 weeks, rather than the expected 16 weeks. They’ve cut their tally of returns requiring special handling from 9.8 million in May.
All processes at the IRS that need to be done by a person (paper returns, phone calls, correcting errors on return) all seem to be subject to delays. Because of this, many people in accounting jobs have actually determined mailing letters to the IRS and waiting several months for a reply is a better use of their time than waiting for hours on hold to speak with an employee of the IRS directly.
The IRS Checking For Discrepancies and Errors
Breaks created by congress to help people deal with the disruptions caused by congress will cause extra work. The advanced payments of the child tax credit received during 2021 must be reflected on tax returns. People who are eligible for March’s 1,400 stimulus payment, but didn’t receive it, can now claim it on their returns. The IRS will send these notices to taxpayers in late January. These forms will display government records of how much people will receive in child credit and stimulus payments in 2021. If those numbers don’t match what’s listed on tax returns, this leads to processing delays. This is because the IRS has to address discrepancies and errors. This process could be particularly difficult for households that have now added children, or had significant income changes.
Filing electronically, using direct deposit, and making sure child credit and stimulus numbers match correctly are all actions you can take to help avoid slowdowns.
Employees of the IRS paper processing centers are still working under pandemic restrictions. This makes electronic filing more important. This adds another layer to the challenges the IRS is faced with. Some believe that the IRS should take some of its new employees and redirect them to address chokepoints in tax filing. The majority of taxpayers are trying to comply, despite difficulties.
Changes in Tax Laws
Congress may retroactively change 2021 tax laws. The stalled tw0-trillion dollar education, health, and climate change bill would increase the cap on state and local tax deduction. This would start with the 2021 tax returns that people are soon to file. The IRS delayed the deadline in 2020 to July 15th, and in 2021 to May 17th. However, they’ve announced that they won’t be delaying it this year.
Congress is normally reluctant to change prior year’s tax laws after tax filing season has already started. This is because of the administrative burden on both taxpayers and the IRS. However, in March of 2021, Congress retroactively lowered income taxes on unemployment benefits in 2020. Furthermore, the IRS issued almost 12 million refunds to people who already filed and paid taxes on that income. They expect that work to continue into 2022.
Generally, tax preparers advise people to file their taxes as early as they can manage. As most people do get refunds, filing earlier allows them to get them sooner. Filing a legitimate return can also help in preventing a taxpayer’s information from being stolen. If you get information to your tax preparer earlier in the year, they’ll most likely have more time to analyze this information and help you.
The potential expanded tax break for state and local taxes, however, may give some people a reason to wait to file their returns.
It’s possible that Congress won’t make a final decision on what the 2021 tax code is until after the IRS has already started accepting 2021 returns this tax season. While it’s good that Congress is trying to help so many taxpayers through retroactively changing the tax laws, it’s clear the implementation of these changes is quite problematic and painful to many.
So in Conclusion…
The Coronavirus pandemic has led to a great number of problems for taxpayers and for the IRS. Delays caused by errors and discrepancies and retroactive changes to the 2021 tax code will all contribute to tax season being particularly difficult and exhausting yet another year.
If you’re looking to learn how to lessen your tax bill moving forward, you may want to reach out to us at Retallick Financial Group. We offer services and products that could potentially help you with this. You can give us a call at: 239-444-5980