As millions of last-minute taxpayers rush to file their taxes on Tax Day, the Biden Administration is asking Congress for $80 billion in funding over 10 years to modernize the Internal Revenue Service.
The IRS kicked off tax season two weeks earlier than usual in a less than favorable light, as it was still processing millions of tax returns dating back to 2020. To tackle the mounting backlog and address American taxpayers' returns this year, the IRS was forced to shift thousands of workers around to fill staffing shortages in customer service and tax processing — further aggravating its internal staffing crisis.
“Today’s deadline is an inflection point in what has been the agency’s most challenging filing season in recent history,” Natasha Sarin, Treasury’s counselor for tax policy and implementation, said in a statement on Tax Day. “This is the byproduct of chronic underfunding that has starved the IRS of the tools it needs to serve the American people, coupled with a historic pandemic that introduced new responsibilities alongside mammoth challenges.”
2022 tax-filing season brings ‘no unexpected problems’
An estimated 160 million tax returns are expected to be filed this year, according to the IRS, but as of April 1, the IRS had received only 130 million returns.
According to the IRS latest filing statistics, the tax agency has issued more than 70 million refunds worth over $222 billion — with an average refund of $3,175 compared to $2,888 this time last year.
Ken Corbin, wage and investment division commissioner and chief taxpayer experience officer for the IRS, recently told Yahoo Live that 96% of taxpayers opted for electronic filing this year, reducing the risk of further processing delays this tax season. As of April 8, the IRS processed 9.5% more returns compared to a year ago.
Despite the need for additional funding, Corbin said the tax agency is well on its way to improving taxpayers' experience for 2023. Still, the challenges of paper backlogs weigh heavily on the IRS.
“We have to be sensitive to those taxpayers whose returns have not been processed — it’s critical to them,” Corbin said. “What this means for these taxpayers is that their experience has been a challenging one. But at the IRS, we’re all hands on deck. We have a plan so that we can get better than healthy by the time we get to the 2023 season.”
IRS aims to serve American taxpayers ‘the way they deserve’
The IRS started off the year with a historic backlog of unprocessed returns, with millions of Americans still waiting on refunds from last year.
“There is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, tax administration did not work for them,” National Taxpayer Advocate Erin Collins told Congress earlier this year.
If Congress approves Biden’s proposal for an $80 billion multi-year funding, the IRS can finally serve the American people “the way it wants to, and the way they deserve,” according to Treasury’s Sarin.
“Ours is a tax system that takes the average American 13 hours to file,” Sarin said in a prepared statement. “It is a tax system with a gap between what is owed and what is collected that is estimated to be $600 billion annually — roughly 3% of GDP on an annualized basis, with more than 30% of these unpaid obligations accruing to the wealthiest 1%. It is a tax system where ripped paper returns are literally pieced together with scotch tape.”
Still, the chances of a funding boost for the IRS may be too optimistic, according to the Tax Policy Center. Last year, Biden proposed a similar multi-year $78 billion increase in funding plan for the IRS — roughly a 55% boost — that lawmakers promptly rejected.
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.