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Major IRS Refund Delays: Why Are Returns Taking So Long?

The need to manually process tax returns is slowing refunds

If you feel like you’re having to wait longer than usual for your refund this year, you’re probably right. In prior years, tax refunds have generally been issued within 21 days of a return being filed. For many taxpayers right now, that time window has increased to as much as six or eight weeks.

Why? Well, the IRS was already burdened with COVID-related staffing shortages and the accompanying massive backlog of unopened mail in the wake of the CARES act when the Consolidated Appropriations Act of 2021 was signed in December of 2020. This second round of stimulus required additional changes to IRS forms and software. Then, the American Rescue Plan went into effect on March 11, 2021—after the start of an already delayed tax season—and IRS was forced to incorporate yet more guidance to address the included relief for millions of taxpayers who received unemployment benefits in 2020.

Unfortunately for many early filers, the timing of COVID relief provisions is working against them. A recent article published by USA Today and posted on yahoo!Finance identified the single biggest challenge the IRS is facing in expediting 2020 refunds: Nearly 30 million returns require manual processing this year.

Among the reasons behind the unprecedented necessity for manual processing are insufficient time for software updates, inconsistencies on individual returns, and a lingering backlog of paper returns. 

If you’re one of the people waiting for a refund and want to check the status of your 2020 tax return you can try the  “Where’s My Refund?” tool on IRS.gov, and/or download the IRS2Go mobile app, which may have more specific information about your individual return. 

Good News for Early Filers Eligible for Unemployment Relief

IRS to Automatically Adjust Affected Returns

Unemployment benefits is shown on the business photo using the text

The IRS guidance we have been waiting for regarding tax returns with unemployment claims that were filed prior to the American Rescue Plan has arrived.

IRS issued a press release yesterday, Wednesday, March 31, stating that they are taking steps to identify and recalculate returns that are eligible for the $10,200 unemployment income deduction under the third stimulus package, but filed before the provision was passed. You can read the online press release here.

Once the new AGI is calculated, IRS will automatically issue refunds , or apply available funds to money that is owed. This takes the burden off early filers who might have otherwise had to file amended returns.

Stimulus Updates: IRS Get My Payment Tool; Record Keeping; and Unemployment Revisited

The announcement of an extension for filing and payment of taxes this year does give people some breathing room as far as sorting out some issues brought about by the stimulus package that passed after the start of tax season, though we are still waiting guidance on some issues, as well as software updates to address the unemployment benefit deduction.

Here is what we can tell you:

  • Business Bookkeeping Services does not have any information about individual clients’ stimulus payments.
  • IRS issued a press release today, March 22, announcing the disbursement of more stimulus payments. Direct deposit payments should be in bank accounts by March 24, 2021. For those without direct deposit, you are advised to keep an eye on your regular mail for paper checks and/or prepaid debit cards. Visit the online press release here for more information about what to look for so you don’t accidentally throw it away! 
  • If you think you are eligible for a payment and have not received it yet, you can check the Get My Payment tool on IRS.gov on to see if the your payment has been scheduled. The site has detailed information and easy-to-follow instructions.
  • Any payments you received from the three rounds of economic stimulus are not taxable, but they must be reported on your returns (Rounds 1 & 2 for 2020; Round 3 for 2021). Because of this, everyone needs to keep a record of these payments, including the amount(s) you received and when.  No one wants to backtrack at the end of the year to try and find information from 10 months before, so save yourself the trouble and start a tax folder for 2021 right now.
  • For people who received unemployment benefits in 2020 and filed their taxes before the American Rescue Plan stimulus package passed, IRS is reinforcing previous guidance asking taxpayers not to file amended returns. The plan to address these discrepancies is through software designed to identify and correct returns that are eligible and automatically issue refunds. We do not, however, have a timeline for when this software will launch.
  • The recent notices from IRS have come while we continue to await guidance from Massachusetts on how to handle the $10,200 stimulus unemployment income deduction at the state level. We are continuing to move forward with what we can in the meantime.

Don’t forget to start your tax folder for next year! Hopefully some things will be back to normal by then, but you will still need to know how much stimulus money you received this year.

Top 3 Reasons to Pay Attention to Your Paystub

Your paycheck holds a lot of important information, but for most people, as long as the money is coming in, the actual paystub is out-of-sight and out-of-mind. The fact is, your paystub can be the difference between a tax refund or bill at tax time, as well as a playing a key role in getting a loan, or even verifying your identity in the fight against tax fraud. Below are the Top 3 Reasons why it’s a good idea to make sure you have access to your paystubs, either online or in hardcopy, and why it’s important to check them periodically.

  • Getting a Refund vs. Owing Money at a Tax Time: Changes in tax laws, marital status, or even a slight bump in your income that puts you in a higher tax bracket can unwittingly leave you owing money at the end of they ear when you used to see a refund. The best way to prevent this from happening is to periodically look at your paystub to see exactly how much is being taken out of each one based on your “withholding allowances.” Unfortunately, withholding is one of those things that is usually set up on the first day of a new job as part of the paperwork, and never looked at again. There are basic guidelines about who should claim how many allowances based on your number of dependents, Head of Household status, but with so many people working second or part-time jobs, or joint filers with spouses who work, the standard guidelines don’t always make sense if you want to avoid owing money at tax time. See our previous post about where on your paycheck you’ll find your withholding elections, and if too much or too little is being taken out every month, you should fill out a new form W-4. The sooner you do it, the smaller the adjustment needs to be to rebalance your tax debt to your preference.
  •  Identity Theft & Fraud Prevention: With the widespread tax fraud across the country this year—particularly with respect to unemployment, paystubs have taken on even greater importance. As efforts increase at both the state and federal level to guard against tax fraud, paystubs are among the documents being requested to verify identity. For this reason, we are urging clients to make sure they have a copy of their last paystub of the year readily available—either electronically or in hard copy. We have seen instances where processing tax returns has been denied until these documents are produced.
  • Income Verification: There are seemingly mountains of documents that lenders require when applying for a loan—whether it’s a mortgage, Home Equity line of credit, or a personal loan. Paystubs are just part of the equation, but lenders want to know that you’ve got money coming in so you’ll be able to pay them back for the money going out. Depending on the frequency with which you get paid, they may ask for two or more paystubs, but regardless how many, they must be the most recent ones. Having easy access to your paystubs is one step toward making the process easier.

Stimulus Round 3: Unemployment Questions Answered

The passage of the most recent stimulus package —The American Rescue Plan— is good news for most taxpayers. However, particularly for those who received unemployment benefits in the last year, implentation of the bill after the start of tax season is creating some confusion.

Shortly after the president signed the Act, IRS issued a statement indicating that a software update will be installed to address any potential issues with 2020 tax returns. In the meantime, the main takeaways with regard to unemployment are:

  • The American Rescue Plan includes a retroactive benefit that will make the first $10,200 of unemployment income from 2020 non-taxable for individuals who earned less than $150,000.
  • IRS is urging taxpayers who are eligible for this benefit to delay filing pending the software industry update that will account for the adjustment.
  • Taxpayers who have already filed their 2020 returns should also wait to see if an amended return will be necessary.

For our clients who meet the eligibility requirements of the unemployment provision:

  • If we have already processed your taxes and it is determined that an amended return is necessary, the update will be filed after April 15th, per IRS guidance.
  • If we have your information and/or your documents are in progress, we will be holding your return pending the Federal and State software updates before filing. 
  • ​If you have any questions about the unemployment provision in the most recent stimulus, IRS has posted more detailed information here.