If you haven’t received your tax refund yet you are not alone. We have heard several reports from clients who are still waiting on refunds from returns filed early in the year. Unless there is an error, the IRS will typically issue most refunds in less than 21 calendar days. However, 2021 is far from a typical year for a number of reasons.
COVID-19 – The IRS computer system can only be accessed from IRS facilities. So, unlike most other employers that had to deal with the COVID-19 outbreak, IRS employees could not work from home. Consequently, during 2020 and 2021 many IRS employees were furloughed. And the IRS got significantly behind in processing returns, especially paper-filed returns that must be input manually. As a result, the IRS was still processing 2019 returns at the beginning of the 2020 return filing season.
Economic Impact Payments – Congress ordered the IRS to handle the task of issuing three economic impact payments, two in 2020 and one in 2021, further tapping IRS resources.
Recovery Rebates – To make matters worse, those first two economic impact payments had to be reconciled on the 2020 tax return. If a taxpayer didn’t receive the amount they were entitled to, they were allowed an equivalent recovery rebate credit on their tax return.
If there is a discrepancy between the amount of the payments reported on the tax return and what the IRS has on file for the economic impact payment amounts, the IRS is manually verifying the tax return for credit eligibility. This is causing additional refund delays.
Unemployment Debacle – In March 2021, after the 2020 tax filing season had gotten underway and millions of taxpayers had already filed their returns, Congress decided to make a portion of the unemployment compensation taxpayers received in 2020 tax-free. To avoid millions of amended returns from being filed, the IRS has undertaken the task of automatically adjusting those returns and issuing refunds.
Using 2019 Income to Compute 2020 EITC and Additional Child Tax Credit – The EITC and the additional child tax credit are based on a taxpayer’s earned income (income from working). However, because a preponderance of those who normally benefited from EITC and the additional child tax credit were unemployed during 2020, Congress allowed the 2019 earned income to be used in computing those credits for 2020, which also is causing processing delays.
You can use the IRS’s online tool “Where’s My Refund” to determine the status of your refund. To use that tool, you will need:
- Social security number or ITIN
- Your filing status
- Your exact refund amount
Generally, the IRS will pay interest on the refund due to you starting from the later of the following:
- The date the return was filed.
- The date the return is received by IRS if it was filed after the due date.
- The date the IRS received the return in a format they can process.
The IRS stops paying interest on overpayments on the date they issue the refund, or it is used to offset an outstanding liability.
Currently, the interest rate the IRS pays individuals on overpayments is 3%; the rate is adjusted quarterly but has been at 3% since July 1, 2020.
Exception: No overpayment interest is paid if the IRS issues the refund within 45 days of the return due date, or actual filing date if later.
As you can see, refunds are not being issued as quickly as they were pre-COVID and there isn’t anything a tax preparer or taxpayer can do about the IRS not paying out refunds once a return is electronically filed and accepted by the IRS.
Cray Kaiser is here to help if you have further questions about your tax refund. Please contact us today or call (630)953-4900.