Treasury says be ready for frustration this tax season

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Be forewarned, the Treasury is warning of additional headaches this tax filing season. Taxpayers should be prepared for delays as returns and refunds are processed, and difficulties in reaching the IRS. The Treasury officials said funding cuts and staffing shortages due to the ongoing health crisis are causing the problems.

Treasury officials plainly state that taxpayers and preparers should steel themselves for a challenging and frustrating tax season – continued customer-service shortages and other delays persist this year. 

Returns can be filed as early as Jan. 24, with the tax filing deadline set at April 18 for most taxpayers because of a District of Columbia holiday on Friday April 15. Taxpayers in Maine and Massachusetts have until April 19 to file and pay their liabilities due to the Patriots’ Day holiday in those states.

The filing season begins as the IRS is still grappling with several large administrative challenges that have been exacerbated by the pandemic, along with additional requirements — such as the processing of stimulus payments and advance child tax credits. IRS representatives were only able to answer about 10% of phone calls to the agency last filing season, and, as of mid-November 2021, the agency still had a backlog of roughly 8.6 million returns to process. To put that in perspective, the IRS would typically start the filing season with a backlog of fewer than 1 million returns, according to Treasury officials.

The IRS says it generally processes refunds within about three weeks of a tax return’s submission. The agency recommends filing electronically and requesting for the refund via direct deposit — rather than a mailed check — for a faster turnaround.

By law, the IRS must hold refunds until at least mid-February for taxpayers claiming the earned-income tax credit or the additional child tax credit that Congress enacted last year — so that the agency can conduct additional fraud checks. Taxpayers who did not receive some or all of their $1,400 stimulus payment from the March 2021 pandemic relief law can also claim that on their tax return this year.

To add to the headache, many refund will be smaller this year. The average tax refund in 2021 was $2,815, according to IRS data. Democrats in the March 2021 American Rescue Act expanded the child tax credit for low-and-middle income households and sent half of the up to $3,600 payment in monthly installments. Those went out from July through December, essentially distributing a portion of the refund up front.

That shift to monthly payments — rather than the usual lump-sum distribution in the spring — was designed to help lower- and middle-income families better meet their regular living costs, especially amid the enduring pandemic. But the new method means some people won’t get the size of refunds that they’d otherwise expect — and could even have to pay the IRS back if their incomes end up being too high.

The Treasury officials said that it is critical for Congress to pass the Democrats’ social-spending bill, which includes $80 billion for the IRS to bolster the agency’s enforcement efforts and its service operations.