Treasury watchdog warns of tax refund delays as IRS works through backlog

Taxpayers may face delays in getting their refunds this season, a Treasury watchdog warned, because the Internal Revenue Service is still dealing with last year's backlog and faces difficulties hiring enough workers to process old and incoming returns.

"Of particular concern is the continued challenges in hiring sufficient staff needed to both continue to work backlog inventory and process Tax Year 2020 tax returns at the same time," the Treasury Inspector General for Tax Administration wrote in a report released on Wednesday. "This could further affect taxpayers awaiting refunds and additional Recovery Rebate Credits associated with these Tax Year 2020 returns."

Read more: Here's how you should use your tax refund in 2021

At the end of 2020, the IRS had a backlog of more than 11.7 million paper returns, both individual and business, that needed to be processed. Some taxpayers with unprocessed returns may have trouble contacting the understaffed IRS, further delaying those returns. Additionally, the IRS may need to divert resources for the backlog to the ongoing distribution of the third round of stimulus checks.


"The backlog of returns, correspondence, and other types of work resulting from the pandemic has and will continue to have a significant impact on the associated taxpayers," the report said.

Income tax return form ready to be filled out with money in background
Photo: Getty Creative (JJ Gouin via Getty Images)

While the IRS increased their hiring goals for the 2021 fiscal year, they "have been unable to hire as many new employees as they expected," the report found. Too few applicants and problems processing applications delayed hiring.

The IRS is slower processing individual tax returns versus last year. As of March 12, the IRS had processed 88.5% of the total tax returns it received, while last year at this time the agency had processed 96.5% of total received returns, according to agency data. Overall, the IRS has processed 15 million fewer returns this year compared with the same time last year.

Read more: Taxes 2021: How to avoid scams this filing season

This year, the filing season opened on February 12, a delayed start compared with previous years, leaving Americans with less time to prepare their returns. The initial April 15 deadline for personal tax returns also has been pushed to May 17.

Taxpayers can claim the first and second round of stimulus checks on their 2020 taxes as a Recovery Rebate Credit if they didn't receive a stimulus payment or received the wrong amount.

Additionally, the IRS recently announced that jobless workers who already filed their taxes and are eligible for the newly-implemented tax break on the first $10,200 of unemployment benefits do not need to amend their return if they filed already. Instead, the agency will send a second refund automatically for the difference.

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Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

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