Tax season is set to begin soon. This will be the third tax filing season to happen during the coronavirus pandemic. It will likely lead to more frustration and uncertainty for both taxpayers and tax preparers.
Some things, however, will return to normal. As an example: The individual tax deadline will return to its usual mid-April date, for the first time since 2019. Furthermore, the IRS has stated that it has steadily been reducing its backlog of 2020 tax returns. However, the IRS is dealing with this leftover paperwork while also facing additional challenges. This includes the problem of retroactive legislation. Another issue comes in the form of pandemic-specific changes in tax laws that will require attention from taxpayers. Erin Collins, the leader of an independent taxpayer advocate group within the IRS, said “The IRS is going to start the filing season in a hole.”
The IRS is Still Processing 2021 Returns
In late December, the IRS stated that they were processing returns received before April of 2021. They were still doing this to ensure they didn’t contain errors or require special attention in some way. This meant, however, that as of December 18th the IRS still had 6.3 million individual returns, and 2.3 million amended tax returns to process. The agency also stated that those amended returns could take more than 20 weeks, rather than the expected 16 weeks. They’ve cut their tally of returns that require special handling from 9.8 million in May.
All processes within the IRS that are done by a human being rather than a machine (paper returns, phone calls, correcting errors on return) seem to all be subject to major delays. Many people in accounting jobs have even decided that mailing letters to the IRS and waiting several months for a reply is a better use of their time than waiting for hours on hold to speak to an IRS employee on the phone.
Checking For Discrepancies and Errors
Depending on the details of your annuity contract, you might pay certain fees. There are other fees aside from the
Breaks created by congress to help people deal with the disruptions caused by the pandemic are going to cause extra work. People who were eligible for March’s 1,400 stimulus payment but didn’t receive it can now claim it on their returns. Additionally, the advanced payments of the child tax credit received during 2021 must be reflected on tax returns. The IRS will send notices to taxpayers in January. These will display records of how much people will receive in stimulus and child-credit payments in 2021. It could lead to processing delays if those numbers don’t match what’s listed on returns. This is because the IRS has to address discrepancies and errors. This process will be particularly difficult for households that have added children or had significant income changes.
Filing electronically, using direct deposit, and making sure child-credit and stimulus numbers match the IRS forms are all things you can do to help avoid slowdowns.
Employees for the IRS paper processing centers are still working under pandemic restrictions. This adds another layer to the problems the IRS is facing. makes electronic filing more important. Some people believe the IRS should take some of its employees and redirect them to work on addressing chokepoints in tax filing. The majority of taxpayers are trying to comply despite difficulties.
Retroactive Changes in Tax Law
Congress could still change 2021 tax laws retroactively. The stalled $2-trillion education, health, and climate change bill would increase the cap on state and local tax deduction. This would start with the 2021 tax returns that people are about to file. The IRS has announced that it won’t be delaying accepting 2021 returns, however, in past years it has delayed the deadline by several months.
Congress is normally reluctant to change the prior year’s tax law after tax filing has already started. This is because of the administrative burden on both taxpayers and the IRS. However, in March 0f 2021, Congress did retroactively lower income taxes on unemployment benefits in 2020. Additionally, the IRS issued around 12 million refunds to people who already filed and paid taxes on that income. They expect that work to continue into 2022.
Tax preparers will generally advise people to file their taxes as early as they can manage to. As most people do get refunds, filing earlier allows them to get that money sooner. Filing a legitimate return can also help in preventing a taxpayer’s information from being stolen by an identity thief. If you get information to your tax preparer earlier in the year, generally, they will have more time to analyze that information and to help you.
The potential expanded tax break for both state and local taxes, however, could give some people a good reason to wait to file their returns.
Congress may still not have made a final decision on what the 2021 tax code actually is even after the IRS has started accepting 2021 tax returns. While it’s good that Congress is trying to help so many taxpayers through these retroactive changes to the tax laws, the implementation of these changes is clearly problematic and painful to many people.
The Coronavirus pandemic has led to a number of problems for taxpayers and for the IRS. Delays caused by errors and discrepancies and retroactive changes to the 2021 tax code will both contribute to tax season being particularly difficult and exhausting for yet another year.
If you’re looking to lessen your tax bill moving forward, consider reaching out to us here at Tower Bridge Financial. We offer services and products that may be able to help you with this.