Why is My Tax Refund Delayed?

The tax season tends to be intimidating for most people. And this year, taxes are even scaring the IRS. 

Once we all file our taxes, the Internal Revenue Service is then responsible for determining whether we owe the government more money, or if we (crossed fingers!) receive a tax refund. However, numerous COVID-related stressors have made these calculations far more difficult than usual.

Firstly, important changes to the tax code were signed into law in December 2020, under the Consolidated Appropriations Act of 2021. Here, there are several changes that affect both businesses and individuals, but one of the biggest involves invoking the 2019 “Lookback” rule for those claiming the Earned Income Tax Credit. 

To qualify for the Earned Income Tax Credit and/or the Additional Child Tax Credit, taxpayers must normally show proof of earned income. COVID-19 led to economic disaster in 2020, with unemployment reaching a record high of 14.8% in April 2020. In other words, the Earned Income Tax Credit would not have been able to help the millions of people who hardly had any income to report in 2020. To counteract this effect, taxpayers were able to use their 2019 income to qualify for the Earned Income Tax Credit on their 2020 returns. 

This change was intended to benefit the taxpayer, but it has created trouble for the IRS since they were unable to update their computer systems fast enough to keep up with the tax code. As a result, the IRS has been manually processing millions of tax returns. Manual processing also becomes necessary whenever any discrepancies arise in tax returns. 

Ultimately, this means that the IRS has been taking much, much longer than usual to send out tax refunds to qualifying taxpayers. 

But that’s not the only reason the IRS is behind. The IRS is also responsible for issuing all those stimulus checks. There have been three rounds of COVID-19 stimulus checks thus far, translating to direct deposit or mail payments for the majority of the American population. This is no small task to place on an already overburdened, underfunded agency whose staff members have largely been working from home throughout the pandemic. 

And lastly, working from home has been the final nail in the coffin for IRS efficiency. 

IRS employees transitioned to working from home in March 2020 as COVID-19 was running rampant and human interaction was dubbed largely unsafe. 

However, as we all learned last year, some jobs adapt more easily to remote work than others. IRS employees have had a difficult time working from home due to delays in phone support and taxpayer mail, as well as delays in both the processing of paper tax returns and those filed electronically.

Between slashed budgets, outdated software, working from home challenges, tax code changes, and the increased responsibility of handling stimulus checks, the IRS has been facing an uphill battle. And, as a result, many Americans will simply have to keep waiting for their refunds.

Get in touch with us to learn more.