Tax refund delays could continue as backlog of tax returns is growing, tax

The IRS is falling behind in processing millions of income tax returns, potentially delaying refunds for many Americans.

According to the Taxpayer Advocate Service, an independent arm of the IRS focused on tax filers’ rights, the agency is holding almost 31 million returns for manual processing just ahead of the May 17 tax filing deadline. That backlog has grown by 2 million returns since mid-April, National Taxpayer Advocate Erin M. Collins told CBS MoneyWatch. 

“I was hoping it would go down, but I’m not that optimistic,” she said of the logjam. “Taxpayers will continue to experience unusually long delays. I don’t think anyone wants to hear that, but that is the case.”

Collins had flagged the issue in an April 22 blog post, when the number of tax returns held up for manual processing had reached about 29 million. Some of those returns are paper tax filings from 2019, which the IRS got behind in processing due to the coronavirus pandemic last year. But much of the backlog also consists of 2020 tax returns, which are still flowing into the IRS.

Some of those newly filed tax returns are getting flagged by the IRS because of issues related to recent tax changes and federal stimulus checks, Collins said. One of those relates to the “Recovery Rebate Credit,” the line on Form 1040 that allows people to adjust their stimulus payments if they didn’t receive all the funds to which they were entitled. Some people are incorrectly filling out that line, typically by claiming the incorrect amount on the form. 

In such instances, the IRS flags the return for review — that requires an employee to check the return against the agency’s record of stimulus payments. All that can add time to processing a tax return, which, in turn, means delays for taxpayers in getting their refunds. 

Collins expressed concern that the returns-processing backlog will continue to grow ahead of the May 17 filing deadline. So far, about 121 million tax returns have been filed out of the more than 160 million that are expected. 

With more than 40 million taxpayers yet to file, it’s likely a portion of those returns will end up flagged for review — leaving those taxpayers with an unknown wait for their refunds, rather than the usual three-week turnaround.

“My tax person said he was shocked if I wouldn’t see my refund in 10 days, and it’s been over two months,” said Hillary Osborne, 41. She filed her 2020 tax return on February 27. So far, nothing. “I check ‘Where’s My Refund?,’ and it says it’s still being processed — I called the IRS after 21 days, and you can’t get through to anyone.”

Osborne, a single mother who works as a project administrator in Tennessee, said her refund should amount to more than $4,400, which will cover about four months of rent. She said her taxes are fairly simple, but she wondered if something about the stimulus checks have tied up her return. 

For now she remains in limbo, with Osborne telling CBS MoneyWatch she’s been unable to reach anyone at the IRS. “I’m not happy,” she said. “I depend on that money.”

In limbo for a year

Some taxpayers are still in the dark due to tax returns filed last year, when the IRS shut down its offices as the pandemic took hold. Paper tax returns filed for the 2019 tax year were stored in trailers until IRS employees could get to them. As of March, the agency still had a backlog of 2.4 million paper returns from the 2019 tax year to process.

The IRS also must cope with the unprecedented health crisis with significantly fewer employees and less funding compared with a decade ago. The number of operations staff has fallen by almost a third since 2010, while overall funding has declined by more than 20%, according to…