Millions of Tax Refunds Delayed Due to IRS Backlog

Multiple accounting industry publications are reporting that there is a backlog when it comes to the IRS processing returns as we approach the extended filing deadline of May 17, 2021. The backlog could result in a delay of refunds getting into the hands of taxpayers.

The Taxpayer Advocate Services reports that nearly 31 million returns are in line for manual processing at this time. At last look at these figures in late April, the number of returns sat around 29 million. While a good amount of the backlog is made up of 2020 tax returns, the IRS is also still playing catch up on paper filings from 2019. The COVID-19 crisis is to thank for the game of catch up the agency has had to play with those returns from 2019.

Another source of delay is newly filed returns being flagged by the IRS. Many of those flags are a result of issues coming from recent tax changes and stimulus checks. A line on Form 1040 that relates to the Recovery Rebate Credit is proving to be challenging for some filers. The line allows them to adjust stimulus funds if they did not get all of the funds that they were entitled to. The incorrect amount is often being placed on this line, thus resulting in a flag returned. Those who find themselves in this scenario will need to check the return against the agency record of stimulus payments. This exercise is adding to the delays.

Usually the IRS can turnaround a tax refund in three weeks. With a handful of days left to go before the official deadline and millions of tax returns still flowing in that could be flagged, there is no sure way to know when refunds will make their way to taxpayers.

Holbrook & Manter will continue to monitor this issue and keep you posted.