Due to the coronavirus pandemic, 2020 may be a tax year like no other. Here are answers to some of your most important questions.
The Internal Revenue Service has 29 million tax returns for manual processing. This contributes to more delays in refunds than is common in a normal filing season. According to Erin Collins, the National Taxpayer Advocate.
“As you would expect, the IRS staff are very thin when it comes to manually processing these returns,” Collins said on Wednesday. “So if a taxpayer’s tax return is pulled for manual processing, there will be delays.”
Typically, the IRS sends most refunds within 21 days or less after taxpayers file their tax returns. For some early registrants, however, the wait for a tax refund was six to eight weeks.
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Of the almost 30 million returns held for manual processing, more than 8 million individual returns in the week ending April 9 were in the “suspense” status and were waiting for review and manual processing.
Why? The $ 900 billion stimulus package that went into effect in December, known as the Consolidated Appropriations Act of 2021, didn’t leave the agency enough time to prepare for some tax law changes before the late filing season began on February 12.
With the COVID-19 pandemic messing up nearly every aspect of life in 2020 and through 2021, the Internal Revenue Service decided to postpone the deadline for federal filing of taxes. Instead of April 15, federal taxes should now be completed by May 17. (Photo: michaelquirk / Getty Images)
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The December business stimulus bill included an “earnings review” rule that allowed taxpayers to use their 2019 income to calculate their eligibility for the Earned Income Tax Credit or the Child Additional Tax Credit on their 2020 tax return.
Both are refundable tax credits for working people and low-to-middle-income couples, especially those with children.
Since the IRS did not have enough time to update their computer systems after the tax code was changed, a manual review of a tax return is required if a taxpayer used the 2019 “earnings review” rule to calculate these credits, according to Collins.
“Due to the late passage of the law, the IRS was unable to adjust its forms and computer systems in a timely manner prior to the start of the filing season to allow for systematic processing of tax returns where taxpayers decided to use the 2019 income,” said Collins. “So the IRS had to create a manual process instead.”
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The agency is checking inconsistencies with the recovery discount credit
Any inconsistencies between the IRS records for stimulus reviews or economic impact payments and the refund credit for a taxpayer’s 2020 tax return would also require manual review and corrections prior to processing, according to Collins.
Some taxpayers have applied for Recovery Rebate Credit if they were eligible for any remaining stimulus funds from the first two payment rounds when they file their 2020 tax return.
Any corrections to the Recovery Rebate Credit or review of the 2019 review election will be processed manually by the IRS’s troubleshooting system. The IRS is putting these returns on “tension” until an IRS employee can review them to review their 2019 income or prior economic impact payment. The return is essentially in a queue waiting to be reviewed and processed.
To put this into perspective, the IRS’s ERS division does not suspend returns during a normal filing season when they are fully operational, as Collins says they are able to review and process them upon receipt.
The IRS is automatically correcting miscalculations taxpayers make when they request their first and second economic reviews for their 2020 tax returns, the agency said in early April.
There is a backlog of unprocessed paper tax returns
Another 3 million that are checked are individual paper returns for 2019 and 2020. In addition, 7 million more individual returns have processing errors or fraud detection issues that require responses from taxpayers. Another 11 million business and other returns were held for manual processing.
The National Taxpayer Advocate has urged the IRS to provide more specific information to taxpayers so they know what to expect and, if possible, make adjustments to help them manage their finances.
“To address taxpayer concerns, the IRS should be more transparent and specific about the status of tax refunds,” said Collins.
The Taxpayer Advocate Service previously recommended that “Where is my refund?” The tool and IRS2Go mobile app should provide taxpayers with more detailed information on the status of their refunds rather than indicating that refunds are being “processed”.
Taxpayers can use the “Where’s my refund?” Tool to check the status of the tax refund by entering the social security number or ITIN, the registration status and the refund amount.
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