Millions of Americans are still waiting on their tax refunds, but why is it taking so long?
The IRS will soon be getting some updates– will you be impacted?
Why have I still not received my federal tax refund?
The IRS website says that most people will receive their refund within 21 days of electronically filing. While filing paper returns does take longer, you should have received your money by now. So, what is taking so long to distribute the money?
One couple shared that they submitted a joint federal income tax on paper and in February, and in August still have not seen the money. The couple found limited information about their return after looking online. However, the amount was listed– $1,332.66. They also made numerous calls to the IRS and never got an answer.
The IRS is incredibly backlogged and is still exploring additional processing strategies. When it comes down to it, there are not enough people at the IRS to process returns in a timely manner.
Will I get compensated for having to wait so long for my return?
The couple that filed in February aren’t the only ones waiting on their returns. Millions of Americans are still waiting on their tax returns from the IRS. If you’re still waiting, by this point your refund is accruing interest. Interest rates will likely rise in October– which means more money for you.
According to the IRS website, they typically pay interest on refunds that are delayed more than 45 days after the filing deadline. Interest rates are adjusted quarterly based on the short-term federal rate. The current interest rate is 5%, but will likely turn to 6% on October 1.
However, there is a downside to accruing interest on your tax refund. The interest that it added to your refund is taxable. Interest payments have increased 33% for the fiscal year of 2021. The IRS has paid out nearly $3.3 billion for individual tax returns.
If you are still waiting on your refund, you can try to track it using the IRS’ Where’s My Refund tool. At the end of May, the IRS still had 21.3 million paper returns to process. This is a 7% increase in the amount of unprocessed returns from the same time last year.
90% of taxpayers submitted their tax returns electronically last year per IRS requests. But, the 17 million paper filed returns have made the issue of backlog worse. As a result, those who have filed paper returns have had to wait unusually long to receive their refunds. In some cases, the wait has been longer than six months.
The backlog of unprocessed returns stems from Covid-19 pandemic-related disruptions. This includes a worker shortage, and the huge task of distributing millions of stimulus checks and adapting to other tax changes, like the child-tax credits.
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Waiving of late-filing fees for billions
The IRS announced that they will waive financial penalties for the billions of Americans that filed late during the pandemic. Around 1.6 billion taxpayers will receive a cumulative payout of more than $1.2 billion in penalty refunds or credits. The payments are expected to come by the end of September. The refund payments will go to individuals and businesses that filed tax returns for 2019 and 2020 late.
The waiver applies to the IRS’s late filing penalty of 5% of your unpaid balance per month, with a cap of 25%. Late payment penalties of 0.5% per month may still apply.
An IRS notice noted that, individual, corporate, estates and trusts and more, may be eligible. However, you must file the tax returns by September 30 to qualify.
This announcement comes after the August 12 update, that there are 9.3 million unprocessed individual returns from 2022. Of that, 7.6 million of those tax returns were paper filings.
The IRS has been working hard to process all of the backlogged returns in order to return to “normal operations” for the 2023 tax filing season.
The IRS is getting additional funding
Over the next decade, the IRS will receive $80 billion in funding. This additional funding is part of the climate and health care bill recently passed by the House.
The funding will be used to update the IRS in a variety of ways. For example, the outdated computer systems will be updated. The customer service systems for the IRS are also set to receive an update. This will include a taxpayer phone line because with the current system, 9 out of 10 phone calls go unanswered.
Most of that funding will be used to increase enforcement to help the IRS collect unpaid taxes. Every year, an estimated $600 billion in taxes go unpaid. Most of this money is owed by the wealthy who under-reported their own income.
By bulking up the IRS’s capacity to go after wealthy tax cheats, they will be able to collect at least $400 billion over the next decade. However, the amount of money collected has the potential be much more than that.
The IRS has decided to conduct a safety review after workers had been threatened. The threats were derived from conspiracy theories that agents were going to aggressively target middle income taxpayers.
After the additional funding mentioned above become official, the Treasury Secretary Janet Yellen specifically directed the IRS not focus its attention on taxpayers with middle class incomes. However, misinformation spreads rapidly online and a rumor started that t agents were going to crack down on taxpayers of all earnings levels.
Include in the baseless threat was that the IRS would distribute firearms to employees authorized to used deadly force. This is what prompted the threats to IRS employees. Now, the agency leadership has launched a safety examination, including risk assessments.