News, insight and advice to keep you informed.
The IRS has informed taxpayers that the agency issues most refunds in less than 21 days for taxpayers who filed electronically and chose direct deposit, some refunds may take longer. However, some refunds may take longer. The IRS listed several factors that can affect the timing of a refund after the agency receives a return. A manual review may be necessary when a return needs a correction to the Child Tax Credit amount or includes a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process. The fastest way to get a tax refund is by filing electronically and choosing direct deposit. Taxpayers who don’t have a bank account can find out more on how to open an account at an FDIC-insured bank or the National Credit Union Locator Tool.
Further, the IRS cautioned taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Taxpayers should also take into consideration the time it takes for a financial institution to post the refund to an account or to receive it by mail. Before filing, taxpayers should use the Where’s My Refund? tool on IRS.gov. The IRS will contact taxpayers by mail when more information is needed to process a return. IRS representatives can only research the status of a refund if it has been 21 days or more since it was filed electronically, six weeks or more since a return was mailed; or when the Where’s My Refund? tool tells the taxpayer to contact the IRS.
Additionally, taxpayers whose tax returns from 2020 have not yet been processed should still file their 2021 tax returns by the April due date or request an extension to file. Those filing electronically in this group need their Adjusted Gross Income (AGI) from their most recent tax return. Those waiting on their 2020 tax return to be processed should enter zero dollars for last year’s AGI on the 2021 tax return. When self-preparing a tax return and filing electronically, taxpayers must sign and validate the electronic tax return by entering their prior-year AGI or prior-year Self-Select PIN (SSP). Those who electronically filed last year may have created a five-digit SSP. Generally, tax software automatically enters the information for returning customers. Taxpayers who are using a software product for the first time may have to enter this information.
The Treasury Department and the IRS announced an aggressive plan to end the pandemic inventory backlog this year. Deputy Secretary of the Treasury Wally Adeyemo and IRS Commissioner Charles P. Rettig traveled to the IRS Campus in Philadelphia where they outlined an aggressive plan to end the backlog. This year, millions of taxpayers are awaiting the processing of their tax returns and receipt of their refunds. The backlog has created one of the most challenging tax filing seasons in U.S. history. The IRS’s backlog challenges today stem from two key sources. First, the agency has been chronically underfunded for more than a decade, with its budget cut by nearly 20% since 2010. The IRS workforce is the same size it was in 1970. However, the U.S. population has grown by 60 percent and the complexity of the economy has increased exponentially. Second, the pandemic created a unique set of new operational challenges for the IRS. The agency was called upon to support emergency relief for taxpayers. This included distributing an unprecedented three rounds of Economic Impact Payments, totaling over $830 billion, to 85 percent of American households. Including individual refunds, the IRS has distributed over $1.5 trillion to Americans since the pandemic began. To tackle the backlog, the IRS has laid out the following approach.
Hiring and Surging Thousands of Employees
- Hiring 10,000 new employees: The IRS has announced plans to hold job fairs across the country in March in Kansas City, Austin and Ogden to fill 5,000 open positions in the coming months. Working with Treasury, the Office of Personnel Management and the National Treasury Employees Union, the IRS recently secured direct hiring authority for these employees and an additional 5,000 new hires to be made over the next year.
- Creating a new 700-person surge team to process new returns: The IRS is in the process of shifting approximately 700 employees at the Austin, Ogden, and Kansas City campuses to process original returns. At full capacity, this surge will close millions of cases each month.
- Maintaining initial surge team to process amended returns and taxpayer correspondence: Earlier, the IRS moved hundreds of existing employees with previous experience to address the backlog and currently has approximately 800 people on this team, which started in February .
- Paying overtime to IRS employees: The IRS has required mandatory overtime for the over 6,000 employees processing original returns. Overtime is also available for approximately 10,000 employees processing amended returns and taxpayer correspondence.
- Supporting additional contractor support for inventory: The IRS is quickly pursuing additional contracting options to help with original return processing, including mailroom operations, transcription, and input of paper returns into IRS systems.
Increased Taxpayer Assistance to Reduce Processing Delays
By helping taxpayers file accurately, the IRS can ensure that refunds are issued quickly. An error-free tax return is processed within 21 days. Accurate individual filings also proactively reduce inventory by decreasing the share of returns that require time-intensive manual attention by employees. Efforts to help taxpayers file accurately include:
- Sending taxpayers more information than ever to prevent processing delays: The IRS has sent more than 100 million letters to taxpayers to prevent delays in processing. In the letters, the IRS proactively calculates the amounts received by taxpayers in third Economic Impact Payments and the advance Child Tax Credit to ensure more accurate returns.
- Providing online help: The IRS created and expanded self-service portals for taxpayers, including for online payment agreements, requesting payment transcripts, requesting Identity Protection PINs and updating personal information.
- Providing in-person help: The IRS has increased the availability of in-person support for taxpayers through extra hours at Taxpayer Assistance Centers throughout the filing season. It also awarded $41 million of support to over 330 organizations across the U.S.
- Providing help on the phones: The IRS has expanded customer callbacks to 70% of its toll-free lines. This fiscal year, a callback option has been offered to over three million taxpayers, saving those preparing their taxes almost one million hours of wait time. Additionally, the IRS has deployed 2,000 contractors to respond to taxpayer questions about Economic Impact Payments and the advance Child Tax Credit.
Developing and Deploying Updated Technology to Automate Functions
- New automated tool to correct return errors: For this filing season, the IRS developed an automated tool that dramatically expands efficiencies and has helped the IRS close 1.5 million error resolution cases in a single week.
- Suspension of dozens of common notices to prevent inventory increases: the IRS reconfigured its systems to temporarily halt sending approximately 40 form notices to taxpayers. This includes mailing automated collection notices that are normally issued when a taxpayer owes additional tax and the IRS has no record of a taxpayer filing a return. This action provides important relief for taxpayers who otherwise could have received a notice for taxes already paid but not processed due to the backlog. This also results in less inventory since taxpayers won’t contact the IRS to inquire about the notices received.
- Improving automated tools for taxpayer assistance: The IRS developed new automated support technology to help taxpayers, including online live assistance and new voice and chat bots to quickly answer taxpayer queries. This has allowed the IRS to move many phone service representatives to work inventory given the exigencies of this filing season.
The IRS and Treasury have worked closely with legislators to highlight the need for resources and this year’s House-passed omnibus represents the largest funding increase for the IRS in the last two decades. However, Treasury stated that the IRS needs stable, long-term funding to be able to modernize outdated technological infrastructure and transition much of its manual work into automated processes.
Taxpayers Reminded to Report Gig Economy Income, Virtual Currency Transactions, and Foreign Source Income and Assets
The IRS has reminded taxpayers of reporting and potential tax obligations from working in the gig economy, making virtual currency transactions, earning foreign-source income, or holding certain foreign assets. The information available on IRS.gov and instructions on Form 1040 can help taxpayers in understanding and meeting these requirements. Generally, income earned from the gig economy is taxable and must be reported to the IRS. The gig economy is the activity where people earn income providing on-demand work, services or goods. Taxpayers must report income from the gig economy on a tax return even if the income is:
- from part-time, temporary or side work;
- not reported on an information return form; or
- paid in any form, including cash, property, goods or virtual currency.
The IRS reminded taxpayers that there is a question at the top of Form 1040 and Form 1040-SR asking about virtual currency transactions. All taxpayers must check the box indicating either “yes” or “no”. The IRS provided a list of some of the transactions involving virtual currency. If an individual disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, they should check “yes”. They should use Form 8949, Sales and Other Dispositions of Capital Assets, to determine their capital gain or loss and report it. If they received any virtual currency as compensation for services or disposed of any virtual currency they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type. Further, the IRS reminded U.S. citizens and resident aliens to report unearned income from sources outside the U.S. unless exempt by law or a tax treaty. They must also report earned income from foreign sources. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, including the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. A taxpayer is allowed an automatic two-month extension to June 15 if both their home and abode are outside the U.S. and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2022. Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15.
Additionally, the IRS reminded taxpayers that federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B, Form 1040, to their tax returns. Part III of Schedule B requires citizens to report the country in which each foreign account is located. In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. Finally, taxpayers with an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2020, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The IRS encouraged taxpayers with foreign assets to check if this filing requirement applies to them. The deadline for filing the annual FBAR is the same as that of Form 1040. FinCEN grants filers who missed the original deadline an automatic extension until October 15, 2022, to file the FBAR. There is no need to request this extension.