The IRS is facing a major backlog of unprocessed tax returns as it struggles to manage a number of demanding tasks. In addition to processing recently filed 2020 tax returns, the IRS also finds itself faced with unprocessed 2019 tax returns and the added mission of distributing the third-round of direct federal stimulus payments. The result has been a delay for many people in receiving their 2020 tax refunds.
This year’s tax season is proving to be particularly daunting for the IRS. The IRS is now reportedly in possession of nearly 31 million returns for manual processing ahead of the May 17 tax deadline, an increase of 2 million from just a few weeks ago in mid-April. The problem will likely get worse, with 121 million returns filled out so far out of the expected total of 160 million.
Part of the problem that the IRS is facing is that it is still working through some returns from last year. The IRS is still working through some 2.4 million unprocessed 2019 tax returns. These returns remain unprocessed because of the IRS’ three-month shut down of its tax processing centers last spring as a result of the COVID-19 pandemic. The IRS has been playing catch up ever since, and was further hindered by the fact that even after they reopened, many tax processing centers were not operating at full capacity because of social distancing requirements. The IRS is also processing returns at a slower rate this year, with the number of returns processed down 16%.
But it is not just last year’s returns that are tripping up the IRS. This year’s returns are particularly significant, with a number of valuable COVID-relief measures tied to 2020 tax returns. Working through these added credits and rebates and determining eligibility for them is likely contributing to delays, with two measures in particular causing a slowdown. Both the recovery rebate credit and the earned income tax credit require extra verification of information, which means it will take the IRS longer to process returns in which people are claiming on or both credits. The recovery rebate credit allows people who did not receive all the money they were eligible for during the first two rounds of stimulus payments to claim the money on their 2020 tax return, while the earned income tax credit is designed to benefit people with lower incomes.
Also contributing to IRS delays is the agency’s role in distributing the third-round of direct federal stimulus payments. To date, the IRS has sent out 164 million payments worth $386 billion. Many of the payments that still need to be made are to those people eligible for what the IRS calls “plus-up” payments, or supplemental payments sent to people whose 2020 tax returns indicate that they are eligible for larger stimulus payments.
Eli Fuhrman is a contributing writer for The National Interest.