With one of the busiest tax seasons on record the IRS is caught between paying out the latest round of stimulus payments – $1400 per adult and $1400 per qualifying dependent (and this time adult dependents are included) – and processing 2020 tax refunds for millions of tax filers.
The clear answer to the question in the title of this article is stimulus payments. The IRS has reported that the majority of stimulus checks have now been sent by direct deposit or mail (see estimated schedule). On the other hand, the IRS have said they are several weeks (and millions of returns) behind processing tax refunds and trying to get hold of a live agent to get an update has been nigh impossible. This has also led them to push out the end of tax season by another month to accomodate them processing tax returns and paying refunds.
You can see this poll on our YouTube channel confirming this but here are a few reasons behind why stimulus checks are being paid out far faster for most people (and yes, I know many are still waiting for their dependent stimulus payments):
- Politically and optically there is more pressure to get stimulus checks out because the whole point is to stimulate the economy by boosting consumer spending in the near term. If these are delayed too long for the majority of people then it may not work and a recession could result. So the focus of the IRS would be getting out the stimulus checks as soon as possible.
- Processing tax returns is far more complicated. Whereas the stimulus payments have been primarily based on income thresholds, refund processing is far more complex. Given the IRS has issued two round of payments in the past, they have been able to get going on the third round much faster as there were only some relatively minor (income) changes to eligibility criteria. The IRS have not stopped processing refunds by any means, especially ones that are systemically processed, but for any refunds required extra manual checks, there would be delays.
- Limited resources. Because of the pandemic and staffing cuts from the prior (Trump) administration the number of IRS staff has actually decreased over time and despite working with external vendors and temporary staff, there just aren’t enough trained agents to cover normal refund processing and all the new tax credits and payments Congress enacted. As a result something had to give and looks like it was processing tax refunds.
- The IRS systems are OLD! They are no Google, Apple or Facebook when it comes to having leading edge IT systems and having millions to spend on R&D to optimize their infrastructure. So when major legislative changes happen that require upgrades to systems and processes in a limited amount of time, it can take quite a while (and focus) to do this while ensuring the right security and verification checks are in place. And this is made harder because they have to work with other agencies who are similarly resource and technologically challenged.
- More people, more focus. There is also a strong argument to be made that the stimulus payments go out to a lot more people than those getting a tax refund. So the political and economic argument is that the IRS should focus on immediate help for struggling Americans who have faced economic hardship due to the coronavirus pandemic versus refunds for people who don’t need the money as much since they were already able to wait a year since (over) paying taxes and would likely be getting the stimulus payment in the interim.
What are your thoughts and experience with the above?