Its been a frustrating time for millions of Americans still waiting for their tax return to be processed so that they can get their much needed refund payments. The IRS guidelines state that 9 out of 10 returns should be processed within 21 days but as many tax payers have found – this is simply not the case.
In fact even after mandated restrictions for refund payments like the PATH act lift, many filers are reporting going from the PATH message to something with “…your tax return is still being processed…” or “…we received your return and it is being processed...” or “Return Processing Has Been Delayed Beyond The Normal Timeframe“
In their latest operations update the IRS has confirmed that all paper and electronic individual refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review (special handling).
However the IRS has stated it still has nearly 7 million unprocessed individual returns including 2020 tax year returns with errors which may require special handling and additional reviews.
This includes amended returns with Recovery Rebate Credit (RRC) corrections or ones that require validation of prior year(s) income used to figure the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC).
What is the IRS doing to manually resolve returns with errors?
In many cases the IRS can process/resolve tax returns with errors without having to contact the taxpayer. E.g mistakes or overpayments with recent stimulus checks (recovery rebate credits).
However this is still a manual process and an IRS agent has to do a detailed review of the return and corroborate with other third party sources information; e.g. from employers or other government agencies. This will result you seeing a “…return processing has been delayed beyond the normal timeframe…” message as shown below.
It is this special or manual handling, which is handled by a separate department, that causes tax return processing and refund payments to take more than 21 days.
Based on the severity of the issue this delay could add several weeks to when you hear back from the IRS and see your refund payment.
Most errors are flagged systematically due to reconciliation errors in returns and other documents for posting to the IRS Master File (IMF) which is processed in daily cycles.
How long will the extra processing delay my refund?
The IRS has confirmed that this manual processing could add another 90 to 120 days to the standard processing timeline, which has been exacerbated by ongoing staffing shortages and remote working due to COVID-19.
If a correction is made to any RRC, EITC or ACTC claimed on the return, the IRS will send taxpayers an explanation via mail. You can also see these on your transcript and appeal it if they don’t agree with the adjustment. See this video on reading your IRS transcript.
Once processing is complete, and all required verifications have been done, you will get an updated message on WMR/IRS2Go and on your transcript. This show against Tax Topic Code 846 (Refund Issued) Code with your estimated Direct Deposit date. You will see your final refund in your account shortly around this date.
Suspected identity theft or fraud
Another cause of ongoing delays in refund payments is related to the increased levels of fraud related to recent IRS payments for stimulus checks and advance tax credits, or general tax payer identity fraud. If the IRS cannot confidently identify a taxpayer (or claimed dependents) based on the return they filed, they will send a letter to the taxpayers address on file to complete any required verification.
This could add several weeks and multiple rounds of correspondence to get to a final resolution. There are specific tax codes that will show up on your refund if you are under a fraud alert and you will need to follow the IRS letters to clear fraud flags and re-verify your identity.
IRS staffing shortages
It’s no secret that severe IRS staffing shortages due to the pandemic, great resignation and budget constraints have meant there are fewer staff to process the growing number of returns as millions filed returns for the first time to claim the many rounds of stimulus check payments.
Because of these staffing shortages and retirements, it is taking longer to process returns that require manual verification and so the backlogs keep growing every tax season, as do the delays. The IRS commissioner acknowledged this open secret recently and said unless Congress approves more funding for system modernization and increased staffing, this issue will keep getting worse.
Today, millions of people are still waiting for prior years’ returns to be processed, and refund checks to arrive in the mail, while preparing for their upcoming tax filing.Charles P. Rettig, IRS Commissioner
Without long-term, predictable funding, the IRS will continue to face severe limitations, unable to provide the service taxpayers deserve and need. Over the last several years, staffing for taxpayer assistance centers decreased so dramatically that less than a third as many taxpayers are able to receive face-to-face assistance from the IRS than they were in 2016.
Last year, the IRS received 120 million calls on certain phone lines during filing season (at times, calls came in at the rate of about 1,500 per second), but our limited workforce was able to answer fewer than 20% of them.
How long will processing for Amended Returns and Refunds take?
The IRS has stated that it now has 2.8 million unprocessed Amended Individual Tax Returns (Form 1040-X); and has estimated that the current processing timeframe could be more than 20 weeks. If you are stuck with this delay, don’t file another return or you’ll just be sent to the back of queue.
Further, contacting the IRS about the status of your amended return may not help much and they are recommending you check your return’s processing status online.