Tax filing season began Jan. 24. If you didn’t mark that occasion by hopping on your computer and filing your taxes right away, you’re not alone.
In fact, roughly a quarter of Americans wait until the last two weeks to file their taxes. But if you’re a serial tax filing procrastinator, this year you might want to consider filing your taxes sooner rather than later.
That’s because the state of the IRS right now could be charitably described as a mess. As of the beginning of this year, the IRS had six million unprocessed individual returns, 2.3 million unprocessed amended individual returns, and over two million unprocessed business returns. Nearly all of these returns require an IRS agent’s attention to be processed.
That kind of backlog is bad news even when we aren’t already starting another tax filing season. It’s led to refunds remaining unissued for taxpayers who filed last April and meant that taxpayer services are sparse. Of the 282 million phone calls the IRS received from taxpayers last year, it managed to answer about 11% of them. Don’t expect that number to get better this year.
Unresponsiveness and delays from an agency responsible for grabbing at your wallet is always irritating for taxpayers, but sometimes it’s worse than that. A bipartisan group of congressmen and senators recently had to request that the IRS stop charging taxpayers penalties and interest for returns that had been filed but not yet processed by the agency. It’s hard to imagine anything more frustrating than paying your taxes but then having the IRS fine you for its own incompetence.
And even if the IRS was up to date from last filing season, there would still be reasons to expect trouble. One is the advance Child Tax Credit (CTC), created as part of the American Rescue Plan Act (ARPA) passed last March. ARPA not only expanded the size of the CTC, but also created a system by which half of the value of the credit would be paid out to eligible taxpayers in the form of monthly payments, rather than as a lump sum received as part of a taxpayer’s tax refund.
The problem with this system lies in establishing who is, in fact, an “eligible” taxpayer. The solution was to base eligibility on the previous year’s tax returns, but this was far from exact. Not only did taxpayers who lost their jobs during the pandemic often have much higher incomes in 2021 than they did in 2020, but divorcees often alternate years claiming their children on their taxes.
As a result, many taxpayers who will not be eligible for the CTC this year, or at least for a reduced benefit, received advance CTC payments that they will have to pay back this tax season. Opting out was possible, but doing so required a process that could take hours and carried with it serious privacy concerns.
And once again, the IRS jumped in to make a bad problem worse. It sent out notices to taxpayers letting them know how much they had received in advance CTC payments over the previous year for use on their tax returns, but for many taxpayers, the IRS’s numbers were wrong. Taxpayers who notice the error are in for a nightmare as they try to get in contact with the IRS to correct its faulty numbers, while those who don’t will likely use the wrong numbers on their tax returns.
The IRS would say that it is suffering from budget cutbacks, but the truth is it has spent the past year exaggerating the scope of the “tax gap” to lobby Congress for massive increases to its enforcement budget and new ways to snoop on Americans’ finances, neither of which would have done anything to remedy its present issues. The agency needs fundamental reform of its technology, privacy practices, and taxpayer services long before it needs additional resources poured into audits.
So if you’re expecting any help from the IRS this year with filing your taxes, you’re probably best off lowering your expectations. File your taxes as soon as you can — this is a bad year to be a taxpayer at the back of the line.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.