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.
Some have been waiting weeks or even months to get an update on their tax return status (via the WMR tool) without much success. But the IRS has published a recent update on why returns are delayed and what to expect going forward, which should be welcome news to those wondering when they will get their refund.
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 such as those with Recovery Rebate Credit (RRC) corrections or validation of 2019 income used to figure the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC).
Around 225,000 tax return are still identified as requiring special handling; down from nearly 10 million earlier in the year.
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.
It is this special or manual handling that causes tax return processing and refund payments to take more than 21 days. 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.
Suspected identity theft or fraud
Another cause of ongoing delays is related to the increased levels of fraud related to IRS stimulus payments this year 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.
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.