Millions of American taxpayers face another tumultuous filing season this year, as special payments sent out during the COVID pandemic complicate their federal returns and create another mammoth challenge for the backlogged IRS.
The IRS’s official watchdog, National Taxpayer Advocate Erin Collins, said Jan. 12 in her annual report to Congress that she was “deeply concerned about the upcoming filing season.” She called the last season “the most challenging year taxpayers and tax professionals have ever experienced.”
With Jan. 24 the first day to file a return for last year, according to a Treasury Department
Either way, the result can impact the dollars a client is budgeting to add to her retirement savings. Many Americans typically consider their refund — the average last year was more than $2,800,
In her report, Collins wrote that “the unprecedented processing and refund delays taxpayers experienced in 2021 could be as bad, and potentially worse, in 2022.” Dan Herron, an accountant, certified financial planner and the founder of Elemental Wealth Advisors, a fee-only advisory firm in San Luis Obispo, California, said that this year would be "very similar to how it was last year. You could call it dumpster fire 2.0.”
Last year’s season was delayed to Feb. 12 amid pandemic-fueled staffing shortages at the IRS and tax law changes that the agency had to program into its systems. As of last December, the agency had around 6 million returns that it had
With the IRS now in its third filing season under the pandemic and expecting more than 160 million individual returns, IRS Commissioner Chuck Rettig warned of tangles in a
“Having an accurate tax return can avoid processing delays, refund delays and later IRS notices,” his statement said. “This is especially important for people who received advance Child Tax Credit payments or Economic Impact Payments (American Rescue Plan stimulus payments) in 2021; they will need the amounts of these payments when preparing their tax return.”
The agency said that it anticipates most taxpayers will receive a refund within 21 days of filing electronically, if they choose direct deposit and there are no issues with their returns. For some taxpayers, that’s a big if. It’s all but impossible to speak to an agency representative, which means that the filing season is already not looking pretty. Over the 12 months through last September, the agency answered only 11% of the record 282 million phone calls it received, Collins' report said.
Rettig's statement acknowledged that “in many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs." Still, it said to carry on: “Taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when they are ready."
Those darn kids
The complicated child tax credit, and its spawn, the advance child tax credit, are causing some of the biggest tangles.
The 2017 tax code overhaul doubled the child tax credit to $2,000 and boosted the income levels at which it phases out, to $400,000 for married couples and $200,000 for everyone else.
In response to the pandemic’s emergence in early 2020, the federal government temporarily
The combination of technology and rising client interest in digital assets are ratcheting up the risks to investors, according to NASAA.
The Biden Administration
But some taxpayers who didn’t opt out could end up having to pay some of the money back — a flow that could show up as a lower refund on their returns this year or a check written to the IRS. Meanwhile, taxpayers who had a baby after last March could see bigger refunds, while those who got divorced and saw a child’s primary residence go to the former spouse could see a smaller or no refund.
The $1.9 trillion American Rescue Plan that authorized the child tax credit boost last March also introduced a woolly method for calculating who gets how much. It’s that method that’s going to cause headaches for many taxpayers when they file their returns come Monday, April 18, three days after the normal deadline due to a holiday in Washington, D.C.
“It’s one of the biggest problems of the filing season,” said Sheryl Rowling, the founder of Rowling & Associates, a fee-only investment advisory firm in San Diego and a columnist for Morningstar. “Most taxpayers will estimate what they got, and then it will be up to the IRS to figure out if they’re owed money.”
The IRS has
The second filter hits higher earners and governs when a taxpayer can receive less $2,000. Once couples make more than $400,000 (more than $200,000 for all other filers), the $2,000 credit falls by $50 for each $1,000 chunk of income over those thresholds. Whip out the calculator.
You’ve got (IRS) mail
Taxpayers also need to make sure they’ve received all three of their economic stimulus payments, known as “stimmie” checks. Two went out in 2020 and a third last year.
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Snail mail from the IRS typically terrifies the recipient, but taxpayers should pay attention if they receive one or both of the following
“Watch for IRS letters about advance Child Tax Credit payments and third Economic Impact Payments,” the agency
Another variable that can throw a wrench into a return is the federal government’s pause on payments for federal student loans from March 2020 through May 1, 2022. That means no deduction for student loan interest on returns filed for those years. The deduction, taken by nearly 13 million taxpayers in 2019,
“The problem is that when there are complications and people get confused, they’re not going to get through to the IRS,” Rowling, an accountant and certified financial planner, said. “If you have to do anything at all with the IRS, it’s going to be a disaster.”
Editor's note: This story has been updated to include details from the National Taxpayer Advocate's report to Congress on Jan. 12.
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