After Filing Your Taxes: Common Questions and Answers
Once you've filed your tax return, you may have some questions. This guide covers common post-filing topics, including refund status, record-keeping, change of address, and amending your return.
Checking Your Refund Status
You can track your refund's progress on the IRS Where's My Refund webpage after your return is accepted. E-filed returns may take up to 72 hours for information to appear, while paper-filed returns can take 3 to 4 weeks. The page updates once daily. To check, have your filing status, the primary SSN, and the exact whole-dollar refund amount ready. If you owe the IRS, enter $1 as the refund amount.
Alternatively, call the IRS Refund Hotline at 1-800-829-1954 for automated refund information, available 24/7.
Maintaining Tax Records
Keep tax records for at least three years from the filing date. Some documents, like those related to home transactions, stock trades, IRAs, or business/rental properties, should be kept longer for personal use and future tax filings.
Address Changes
If your address changes after filing, submit IRS Form 8822, Change of Address. If awaiting a mailed refund, also file an address change with the U.S. Postal Service to forward the check to the correct address.
Correcting Errors and Amending Returns
If you find a mistake on your e-filed or paper return after it has been accepted or mailed, wait for your refund before taking action. The IRS may catch and correct simple errors or omissions, adjusting your refund as needed. If they do, there's no need to file an amended return. To fix errors or add forms (W-2, 1099, etc.) after receiving your refund, file IRS Form 1040X, Amended U.S. Individual Income Tax Return.
For more information contact us at (207) 888-8800.
Federal Unemployment Tax Increasing in New York State and Others
On November 10, 2022, the United States Department of Labor announced that California, Connecticut, Illinois and New York will be credit reduction states for purposes of 2022 FUTA payments. This means that these states have taken loans from the federal government to meet the unemployment benefits obligations and have not repaid the loans within the allowable time frame. As a result, the usual credit against the full FUTA tax rate is reduced and an additional FUTA tax of .3% will be due for employers in these states.
A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame. Employers in credit reduction states will owe a greater amount of FUTA for 2022.
The standard FUTA tax rate is 6.0% on the first $7,000 of wages per employee. Generally, employers receive a credit of 5.4% when they file their Federal Form 940 “Employer’s Annual Federal Unemployment Tax Return,” which results in a net FUTA tax rate of 0.6% (6.0%-5.4% = 0.6%).
The 2022 FUTA credit reduction is 0.3% for the four impacted states noted above. While an employer would typically owe FUTA of $42 per employee who earned at least $7,000 of wages during the year ($7,000 X [6.0% – 5.4%]); an employer in a credit reduction state for 2022 will instead owe $63 of FUTA per employee with earnings of at least $7,000 in 2022 ($7,000 X [6.0% – 5.1%]). As shown in the example, the FUTA credit reduction is reduced by 0.3% from 5.4% to 5.1%. The end result is an increase in FUTA owed of $21 per employee with at least $7,000 of wages earned in 2022. Employers will calculate and report their 2022 FUTA on Schedule A of Form 940 filed in January 2023.
For additional information, contact Heritage Tax at (207) 888-8800.
Do You Owe Money to the IRS?
Possible Tax Resolution Strategies to Set Your Mind at Ease
Even for honest taxpayers, the IRS can be extremely frightening. Unlike most other government agencies, the IRS has unbridled power to attach your wages, freeze your bank account and even confiscate your property, and that is enough to send a chill up the spine of any taxpayer.
If you receive a letter from the IRS saying that you owe additional taxes, it is important not to panic. It may be a frightening situation, but there are things you can do to settle your tax debt and get back on the good side of the IRS.
Taxpayers do have options when resolving tax disputes and paying additional taxes due, and simply knowing what those options are can set your mind at ease.
As an expert Tax Resolution Firm, we encourage all readers facing a tax problem, whether it's the feds or the state, to contact us for a free consultation.
Here are three strategies you can use to resolve your tax debt and get on with the rest of your life. Not all of these options will be right for everyone, but it is important to be an informed taxpayer.
- Review the Amount Owed And Your Tax Return In Question
If the IRS says you owe money, you should not simply assume they are right. The tax agency does make mistakes (a lot), as do tax preparers and ordinary taxpayers.Whether you filed your taxes on your own or hired someone else to do it for you, it is important to examine your return and compare what you find with what the IRS is claiming. It pays to seek professional help for this tax review, even if you originally filed your own taxes. A professional with IRS experience may be able to uncover errors and inconsistencies you would have missed on your own, and that could end up saving you money.There is no guarantee this review will eliminate the extra taxes the IRS says you owe, but it never hurts to be sure. There have been many cases in which taxpayers who thought they owed money to the IRS ended up owing nothing - or even being due a refund from the IRS.
- Set Up a Payment Plan
Getting a notice of additional tax due from the IRS is frightening, especially if you cannot afford to pay what the agency says you owe. Keep in mind, however, that you do not necessarily have to pay the bill all at once.The IRS is often willing to set up payment plans with taxpayers, and those payment plans could make paying what you owe easier and less stressful. Once again, it is a good idea to seek professional help and guidance here - the IRS can drive a hard bargain, and you do not want to end up with a payment plan you cannot afford and wind up defaulting on it.If you fall behind on the payment plan you agreed to, you could be subject to additional enforcement action, including the tax agency garnering your paycheck or seizing funds from your bank accounts. Getting the help of a tax resolution professional up front can help you avoid these serious consequences.
- Explore an Offer in Compromise Settlement
If you are truly unable to pay the money the IRS claims you owe, you may be able to work out a (much) smaller lump sum payment. The IRS may not advertise this program, but they are often willing to work with taxpayers by accepting lesser amounts, especially if those taxpayers have little in the way of equity in assets and a limited income. Sometimes these settlements can be for a fraction of what’s owed, if you qualify. We offer a free no obligation consultation to find out if you qualify.If you plan to explore this last option, it is critical that you work with a tax resolution expert. An offer in compromise can be extremely complicated, with legalese and language that can be difficult to understand. You do not want to make a misstep here, and you want to ensure that you are only paying the lowest amount, allowed by law, in settlement of your tax bill.
Few things are as frightening as getting a letter from the IRS. That official-looking letterhead is bad enough, but what the letter says is even worse. If you receive such a letter, you need to take positive steps right away. Ignoring the situation will make it worse and it won’t go away, and the sooner you start exploring your tax resolution options the better off you will be.
If you want the help of an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain all your options to permanently resolve your tax problem.
Attorney General Warns Mainers About $850 Relief Check Identity Theft Scam
The Attorney General’s Office and Maine Revenue Services have been alerted that scammers claiming to be the “Maine IRS” have been targeting residents and requesting social security numbers, maiden names, and other sensitive information, stating it was needed to process $850 relief checks authorized by the Governor and the legislature last month.
“Maine Revenue Services already has all the information it needs to issue these relief checks, so no one should need to share any information to collect this check,” said Attorney General Aaron Frey. “As always, do not share any identifying information with anyone demanding such information over the phone without independently confirming their identity.”
Eligibility for the $850 relief checks is based upon the 2021 Maine individual income tax return. Relief checks will be mailed via U.S. Postal Service to the address provided on your 2021 Maine individual income tax return and will be redirected to any forwarding addresses filed with the U.S. Postal Service. The first round of relief checks will be mailed in June 2022 – and will be delivered on a rolling basis through the end of the year as returns are received.
This article was previously announced in the Press Release issued by the Maine Attorney General’s Office on May 13, 2022, which can be viewed at: http://www.maine.gov/ag/news/article.shtml?id=7647385.
IRS destroyed 30M paper information returns due to backlog
The Internal Revenue Service destroyed an estimated 30 million paper-filed information return documents in March 2021 because of its inability to process its backlog of paper tax returns, according to a report by the Treasury Inspector General for Tax Administration.
The report, released May 4th, noted that the IRS typically uses information return documents for post-processing compliance matches to identify taxpayers who don’t accurately report their income. The report focuses on how the IRS should be doing more to encourage electronic filing of business tax returns and reduce paper filing. TIGTA reported that, while e-filing of business tax returns has continued to increase, the e-filing rate still lags behind that of individual tax returns.
“Repeated efforts to modernize paper tax return processing have been unsuccessful,” said the report.
During the pandemic, millions of paper tax returns and other documents accumulated at IRS facilities and the agency has been working overtime to catch up on the backlog. Another recent TIGTA report noted that more than 16.4 million individual tax returns, transactions and Accounts Management cases remained in inventory as of the end of 2021. During a Senate oversight hearing last week, IRS Commissioner Chuck Rettig testified that the number of unprocessed tax returns from 2021, as of April 21, had been reduced to 1.8 million (read more here).
The IRS continues to receive large volumes of paper-filed tax and information returns, leading to significant costs to process them every year, according to the new TIGTA report. In fiscal year 2020, the IRS spent more than $226 million on processing paper-filed tax returns.
The report acknowledged that the IRS has taken a number of actions and developed initiatives to increase e-filing. On top of that, legislative requirements have resulted and will continue to lead to increases in e-filing. But TIGTA believes the IRS needs an overall strategy.
“The backlogs of paper tax and information returns to be processed along with the inability to ship paper tax returns and/or retrieve paper tax returns from Federal Records Centers due to the pandemic demonstrate the need for the IRS to develop a Service-wide strategy to further increase e-filing,” said the report. “However, the IRS does not have a Service-wide strategy that identifies, prioritizes and provides a timeline for the addition of tax forms for e-filing nor an accurate and comprehensive list of tax forms not available to e-file.”
The problems led to the wholesale destruction of millions of information returns. The report does not explain exactly why the IRS destroyed millions of information returns, but it seems to be part of an effort to expedite the processing of the backlogged business tax returns.
“This audit was initiated because the IRS’s continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021,” said the report. “The IRS uses these documents to conduct post-processing compliance matches to identify taxpayers who do not accurately report their income.”
The documents help the IRS’s Automated Underreporter Program identify taxpayers who are not accurately reporting their income, but IRS officials told TIGTA that once the tax year ends, the information returns, such as Forms 1099-MISC, Miscellaneous Information, can no longer be processed due to system limitations. That's because the system used to process the information returns is taken offline for programming updates in preparation for the following filing season.
Since 2014, the overall percentage of business tax returns e-filed has increased from 41% to 63%. Employment tax returns continue to provide the most significant opportunity for growth in business e-filing, TIGTA noted. The IRS has yet to establish processes and procedures to identify and address corporate, employer and Heavy Highway Vehicle Use Tax filers that do not comply with e-file mandates. TIGTA’s analysis of tax return filings identified 15,108 filers that paper-filed 22,569 tax year 2018 returns that were required to be e-filed. TIGTA estimates that the processing of these returns cost the IRS $30,196 in comparison to the $3,405 to process the required e-filed tax returns.
TIGTA recommended the IRS develop a Service-wide strategy to prioritize and incorporate all forms for e-filing; develop processes and procedures to identify and address potentially non-compliant corporate filers; and develop processes and procedures to ensure that penalties are consistently assessed against business filers that are non-compliant with e-filing requirements.
The IRS agreed with the first recommendation to develop a Service-wide strategy to incorporate all forms for e-filing, but didn’t agree with the report’s other two recommendations. IRS officials said they didn’t need to develop processes and procedures to identify non-compliant corporate filers because all requirements needed to assess penalties are not known at the time of filing.
The IRS also has systemic processes in place for e-filed partnership returns, which were found to be working as intended. Other types of business returns have differing criteria for e-filing requirements and exceptions to the requirements, which prevent the implementation of a standard process for all business filers.
TIGTA, for its part, said it believes that IRS management’s justification for taking no action on two recommendations is insufficient. “In view of the backlogs of paper tax returns, the IRS should take additional steps in an effort to continue to reduce paper return filings,” said the report.
The IRS pointed out that it’s facing a tight budget but is continuing to pursue more ways to encourage e-filing of various types of business tax returns. “Constrained funding is the foremost obstacle we face in implementing our modernization strategies,” said Kenneth Corbin, commissioner of the IRS’s Wage and Investment Division, in response to the report. “In 2015, we developed business tax return strategies for the employment tax family of returns (forms 94x), Form 990, Return of Organization Exempt from Income Tax, and Form 2290, Heavy Highway Vehicle Use Tax Return. Each of the strategies provided a framework of opportunities to increase the business return e-file rates.”
7 Reasons to Work with a Tax Resolution Professional To Resolve Your Back Taxes
When you owe money to the IRS, it is hard to think about anything else. While being in debt is never fun, no matter who the creditor is, the IRS enjoys almost unlimited power to collect the money they are due.
Unlike your mortgage lender or credit card company, the Internal Revenue Service has the power to attach your wages, raid your bank account and even take your freedom. No other creditor even comes close in terms of its power and influence, and taking on the agency on your own could be asking for trouble.
If you have received a notice from the IRS, you need to act fast, and you need the right assistance in your corner. Taking on the IRS requires specific expertise, and that is why it is so important to work with a quality tax resolution company. Here are seven reasons why working with a tax resolution specialist could save your good name - and your bank account.
- You gain specific expertise. The IRS is a specialized agency, and you need expert advice and guidance to get the most positive resolution.
- It will give you peace of mind. Just being contacted by the IRS can make your heart beat a bit faster, but working with a tax resolution expert can set your mind at ease once you hire a tax resolution specialist. Generally, once you hire a tax resolution expert you won’t have to meet or speak with the IRS. They will handle all communications and correspondence with the IRS.
- The tax resolution process could save you a lot of money. Tax resolution professionals are experts at settlements, and working with one could save you a ton of money.
- Timely action could save your home and property. If you wait too long, you could put your home, business, bank accounts and personal property at risk. Time is of the essence when it comes to resolving tax issues, and timely assistance could make a world of difference.
- You will feel less alone. Few things feel as lonely as fighting the IRS on your own. When you work with a tax resolution expert, not only do you not have to go it alone but they actually step into your shoes to represent your best interests.
- You will have a chance to file missing returns. When faced with a big tax bill, it is easy to do nothing, but failing to file legally required tax returns could have serious consequences down the line. If you have years of unfiled returns, a tax resolution expert can help you catch up.
- You could save your credit score. Unresolved issues with the IRS will reflect badly on your credit report, lowering your credit score and making it harder to borrow money or qualify for a mortgage. Timely tax resolution could preserve your stellar credit score and help you avoid those serious consequences.
Owing money to the IRS can be pretty frightening. There is a reason those three letters strike so much fear into the hearts of ordinary citizens, even those who have done nothing wrong.
If you are in trouble with the IRS, you cannot afford to ignore the issue, so act fast and get the help you need today. Working with a tax resolution expert carries a host of benefits, starting with the nine outlined above.
Most likely, you wouldn’t go to court without a lawyer. Similarly, it’s best not to deal with the IRS without expert representation which can be provided by a tax resolution expert, who by training, is also a CPA, attorney or enrolled agent.
Reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem. www.heritagetaxcompany.com
Do You Owe Back Taxes? Why You Should Stop Panicking & Start Planning
If you owe back taxes to the IRS, some amount of panic is understandable. After all, the Internal Revenue Service has the power of the federal government in its corner, something no other debt collector can claim. They are considered the most brutal collection agency on the planet.
It is easy to freeze up and just do nothing when you owe back taxes to the IRS, but hiding from, or doing nothing about your tax debt will not make it go away. In fact, ignoring the taxes you owe will only make the situation worse, since interest and penalties can really add up. You also risk having your paycheck garnished (the IRS does not need a court order to do this) or your bank account levied. The IRS can also file a Notice of
Federal Tax Lien making it all but impossible to obtain financing for a car or home.
So instead of panicking about your tax debt and hoping the problem will go away, you need to take some proactive steps. Now is not the time to panic and hide - now is the time to start taking action.
Some of these steps you can do on your own if you’d like, while others will likely require the intervention of an experienced tax resolution expert. Here are some proactive steps you can take to get a handle on your tax debt. If you need help resolving your IRS tax problem, contact us here. We help people with IRS problems every day.
Confirm the Amount Owed
When you owe back taxes, one of the first things you should do is make sure you really owe the money. The IRS has been known to make mistakes, a lot of mistakes, and the agency is far from foolproof. Contact the IRS or have us do an IRS transcript analysis to determine the amount the IRS claims you owe.
Seek Out Deductions You May Have Missed
At the very least, you may not owe as much as you think you do, and every dollar you can remove from the bill is one more dollar in your favor. Now is the time to scour your past and current tax returns, looking for deductions and tax credits you might have missed.
Unless you are a seasoned tax expert, you will probably need some professional assistance to make this happen. If you are already working with a CPA or tax expert, you can ask them to look at your past tax returns but only a tax resolution expert, who helps people like you for a living, can protect your income and assets as you go through the process.
If you missed a few deductions and tax credits along the way, your tax professional can file amended returns on your behalf, lowering the amount of tax debt you owe - and possibly eliminating it altogether. However, you usually can’t go back more than 3 years to amend returns.
Look for Special Programs You May Qualify For
The bad news is the IRS wants its money and has the power to collect it.
The good news is the tax agency also offers several programs tax filers can use to make the repayment process easier. In some cases, the IRS may even be willing to settle for less, possibly much less, than the total amount of back taxes you owe.
These programs are not available to everyone, and if you have the resources needed to pay your back taxes, the IRS is unlikely to give you much of a break. But if your resources are limited, the tax agency may decide that a small amount of tax repayment is better than none at all.
The first step in the process is finding the programs for which you might qualify, and that will probably require the help of an experienced tax resolution expert. Most CPAs do not have this experience. Negotiating with the IRS is not an easy thing to do, and you may need help to drive the best bargain and reduce your back taxes. In the end, it may be well worth paying a tax relief expert to negotiate on your behalf, especially if you end up with a much lower tax bill.
It is easy to panic when you owe back taxes, but you should not let fear get in your way. The longer you ignore the problem, the worse it is likely to get, and the sooner you act, the better off you, and your finances, will be. There is a solution to every IRS problem. Let us see what IRS tax debt settlement programs you qualify for today. www.heritagetaxcompany.com
It’s almost that time of year again! If you’re not ready, file for an extension.
The clock is ticking down to the April 18 tax filing deadline. If you live in Maine or Massachusetts, you have an extra day - making the tax filing deadline April 19, 2022. Sometimes, it’s not possible to gather your tax information and file by the due date. If you need more time, you should file for an extension on Form 4868.
An extension will give you until October 17 to file and allows you to avoid incurring “failure-to-file” penalties. However, it only provides extra time to file, not to pay. Whatever tax you estimate is owed must still be sent by April 18, or you’ll incur penalties — and as you’ll see below, they can be steep.
Failure to file vs. failure to pay
Separate penalties apply for failing to pay and failing to file. The failure-to-pay penalty runs at 0.5% for each month (or part of a month) the payment is late. For example, if payment is due April 18 and is made May 25, the penalty is 1% (0.5% times 2 months or partial months). The maximum penalty is 25%.
The failure-to-pay penalty is based on the amount shown as due on the return (less credits for amounts paid via withholding or estimated payments), even if the actual tax bill turns out to be higher. On the other hand, if the actual tax bill turns out to be lower, the penalty is based on the lower amount.
The failure-to-file penalty runs at the more severe rate of 5% per month (or partial month) of lateness to a maximum 25%. If you file for an extension on Form 4868, you’re not filing late unless you miss the extended due date. However, as mentioned earlier, a filing extension doesn’t apply to your responsibility for payment.
If the 0.5% failure-to-pay penalty and the failure-to-file penalty both apply, the failure-to-file penalty drops to 4.5% per month (or part) so the combined penalty is 5%. The maximum combined penalty for the first five months is 25%. Thereafter, the failure-to-pay penalty can continue at 0.5% per month for 45 more months (an additional 22.5%). Thus, the combined penalties can reach a total of 47.5% over time.
The failure-to-file penalty is also more severe because it’s based on the amount required to be shown on the return, and not just the amount shown as due. (Credit is given for amounts paid via withholding or estimated payments. If no amount is owed, there’s no penalty for late filing.) For example, if a return is filed three months late showing $5,000 owed (after payment credits), the combined penalties would be 15%, which equals $750.
If the actual liability is later determined to be an additional $1,000, the failure-to-file penalty (4.5% × 3 = 13.5%) would also apply to this amount for an additional $135 in penalties.
A minimum failure-to-file penalty also applies if a return is filed more than 60 days late. This minimum penalty is the lesser of $435 (for returns due through 2022) or the amount of tax required to be shown on the return.
Reasonable cause
Both penalties may be excused by the IRS if lateness is due to “reasonable cause” such as death or serious illness in the immediate family.
Interest is assessed at a fluctuating rate announced by the government apart from and in addition to the above penalties. Furthermore, in particularly abusive situations involving a fraudulent failure to file, the late filing penalty can jump to 15% per month, with a 75% maximum.
Contact us if you have questions about IRS penalties or about filing Form 4868.
How long it will take to get your tax refund in 2022?
Three in four Americans receive an annual tax refund from the IRS, which often is a family's biggest check of the year. But with this tax season now in progress, taxpayers could see a repeat of last year's snarls in processing, when more than 30 million taxpayers had their returns — and refunds — held up by the IRS.
Treasury Department officials warned in January that this year's tax season will be a challenge with the IRS starting to process returns on January 24. That's largely due to the IRS' sizable backlog of returns from 2021. As of December 31, the agency had 6 million unprocessed individual returns — a significant reduction from a backlog of 30 million in May, but far higher than the 1 million unprocessed returns that is more typical around the start of tax season.
That may make taxpayers nervous about delays in 2022, but most Americans should get their refunds within 21 days of filing, according to the IRS. And some taxpayers are already reporting receiving their refunds, according to posts on social media.
However, so far, the typical refund is roughly $2,300 — less than the average refund check of about $2,800 received last year. That could change as the tax season progresses, given that tens of millions of Americans have yet to file. But it could signal that taxpayers could get smaller checks this year, an issue for households already struggling with high inflation.
IRS Commissioner Charles Rettig earlier this month wrote in a Yahoo Finance article that "millions are waiting for their returns to be processed." He also noted that the agency has the same level of staffing as in the 1970s despite the U.S. population having grown by 60% since then.
But there are some caveats about the 21-day window to get a refund. Claiming the Earned Income Tax Credit or the Child Tax Credit will slow down your tax return due to regulations designed to deter fraud, but that means people who claim those credits and filed their returns on January 24 or close to that date may not receive their refund until early March, the IRS said.
And other issues can slow down your refund, such as errors like math problems or incorrectly stating how much you received from the advanced Child Tax Credit payments. In those cases, your tax return could get flagged, leading to delays of weeks or even months.
Americans are worried about their tax returns this year, according to a survey from Bankrate. About 1 in 4 is concerned their refund will be late, while almost 1 in 3 are worried their refund will be smaller than normal.
Checking status of your refund
Taxpayers can check the status of their refund at the IRS site "Where's My Refund?" Most state agencies also have a tool, see your state’s revenue department website.
People will need to know their Social Security number or their Individual Taxpayer Identification Number, their filing status (such as married filing jointly) and their exact refund amount.
The IRS says people can start checking the status of their refund within 24 hours after an electronically filed return is received by the agency, or four weeks after a taxpayer mails a paper return.
The tool will provide information about three phases of processing: Alerting the taxpayer when their return is received, when their refund is approved and when the refund is sent.
Errors and delays
The IRS on February 14 said tax returns with errors involving the third stimulus check, which are missing information or which have suspected fraud or theft could take up to 90 to 120 days to resolve.
Some taxpayers may also inadvertently claim the wrong amount on their tax returns this year — and through no fault of their own. The IRS also said on February 14 that some of its Child Tax Credit letters — letter 6419 — included incorrect information about the amount some taxpayers received. The IRS is asking taxpayers to refer to the letter when filling out their tax return.
But if that happens, that taxpayer's return may not match what the IRS has on file, leading to the return getting flagged — and delays in getting their return processed and their refund sent to them, said Larry Gray, our colleague and government relations liaison for the National Association of Tax Professionals.
"People may not realize the letter could be wrong, and what is the IRS doing to send out a follow-up communication to stop creating a bigger backlog in the coming season?" he said on a conference call to discuss tax professionals' concerns about the current tax season.
Getting refunds within 21 days of filing
If all goes well, though, taxpayers who e-file can receive their refunds via direct deposit as quickly as one week after filing based on previous years' processing time.
It's important to note that processing time typically slows down as the tax season gets underway and the IRS handles more returns, the publication added.
In the meantime, tax experts say there are some steps that taxpayers can take to help ensure a quick tax refund, which is even more important this year given that the IRS is starting with a backlog. National Taxpayer Advocate Erin M. Collins issued a report to Congress in January that warned she is "deeply concerned about the upcoming filing season" given the backlog, among other issues.
"The first thing you know if you are going to cook a meal, you have to have the kitchen cleaned up from the last meal," said Mark W. Everson, vice chairman at Alliant Group and former Commissioner of the IRS. "It just snowballs into a terrible situation."
Delays in processing tax returns count as one of the agency's most pressing problems, Collins said in her report, which describe an agency in crisis.
Americans are hearing the message: Potential IRS processing delays ranked second among the three top concerns of people who are expecting a refund from the IRS this year, according to a Bankrate.com poll of almost 2,500 people released February 22. (Worries of a smaller-sized refund than anticipated and the diminished purchasing power of a refund due to inflation were the Nos. 1 and 3 concerns.)
Tax returns could be delayed
Although the IRS says most refunds will be sent within 21 days, experts warn that delays are likely, noting that the agency is still working through 2019 and 2020 tax returns.
During the 2020 budget year, the IRS processed more than 240 million tax returns and issued roughly $736 billion in refunds, including $268 billion in federal stimulus payments, according to the latest IRS data. Over that period roughly 60 million people called or visited an IRS office.
Compounding the challenge, it remains hard to reach IRS personnel on the phone. The IRS answered only about 1 in 9 taxpayer calls during fiscal year 2021, Collins reported. "Many taxpayers are not getting answers to their questions and are frustrated," she noted.
Ensuring smooth tax filing comes with a lot on the line, given that the average refund last year was about $2,800. Below are our tips on how to get a tax refund within 21 days of filing:
File Electronically
This is a step the IRS is strongly urging this year. Although some people may simply like filing paper returns — and others may have no choice — the agency says that taxpayers who file electronically are more likely to have their returns processed quickly.
That's because the IRS relies on computers to electronically process filed returns, while paper returns must be handled by human employees. In the early days of the pandemic, the IRS shut its offices and employees stopped opening mail — delaying processing of paper returns.
Even aside from employee strains due to the pandemic, the IRS' staffing hasn't kept up with population growth. The agency's workforce is now the same size it was in 1970, despite the population growing by 60%. That means fewer workers to handle a greater volume of returns.
About 10 million people filed paper returns last year, or about 7% of the 148 million returns filed in 2021, according to data from the Taxpayer Advocate Service. Tax experts urge people to join the roughly 138 million taxpayers who are already using e-filing.
"Paper is the IRS's Kryptonite, and the agency is still buried in it," National Taxpayer Advocate Collins said on Wednesday.
Get a refund via direct deposit
The IRS also recommends that taxpayers arrange to get their refunds by direct deposit. The agency says the fastest way to get your money is to use the combination of e-filing with direct deposit, which sends the money into your bank account.
About 95 million people received refunds last year, with about 87 million of them opting for direct deposit. Most taxpayers who file electronically and choose direct deposit will get their refund within 21 days, assuming there are no problems with the return, according to the IRS.
Don’t Guesstimate
The IRS checks its data against the figures taxpayers detail on their returns. If there's a discrepancy — say your W2 shows that you earned $60,000, but you write on the return that you earned $58,000 — the return is flagged for manual review by an employee.
Once that happens, it's likely your tax return will face a delay of weeks or even months. That's why we advise people to check forms carefully to ensure they're reporting data accurately. Filling out your tax return shouldn't rely on word of mouth or the honor system. This is a guarantee that will cause delays.
Save IRS letters about stimulus, CTC
Along those lines, the IRS is sending letters this month to taxpayers who received the third federal stimulus check in 2021, as well as the Advanced Child Tax Credit payments.
These letters will inform each taxpayer what they received through these programs in 2021 — they are important documents to hold onto because you'll want to refer to those amounts when filling out your tax return.
A major reason tax returns were delayed in 2021 was because taxpayers made mistakes in reporting their 2020 stimulus payment amounts on their returns, resulting in their tax filings getting flagged for manual review.
We always say, don't have any problems that are caused from your own negligence.
However, due to the incorrect CTC letters that were sent to some taxpayers, the IRS is advising taxpayers to double-check how much they received by logging into their accounts at IRS.gov.
The IRS will send two letters:
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Letter 6419 — informing taxpayers of their advance CTC payments. The agency began sending these letters in December and will continue to do so in January.
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Letter 6475 — about the third stimulus check. That letter will be sent in late January.
Keep both of these letters and provide them to us for your tax preparation.
You may face a delay if you claim these tax credits
There are a couple of issues that could cause delays, even if you do everything correctly.
The IRS notes that it can't issue a refund that involves the Earned Income Tax Credit (EITC) or the Child Tax Credit before mid-February. "The law provides this additional time to help the IRS stop fraudulent refunds from being issued," the agency said this week.
That means if you file as soon as possible on January 24, you still might not receive a refund within the 21-day time frame if your tax return involves either of those tax credits. In fact, the IRS is informing those who claim these credits that they will most likely receive their refunds in early March, assuming they filed their returns on January 24 or close to that date.
The reason relates to a 2015 law that slows refunds for people who claim these credits, which was designed as a measure to combat fraudsters who rely on identity theft to grab taxpayer's refunds.
If you, or someone you know, has tax problems contact us at (207) 888-8800. We can help!
IRS backlog hits nearly 24 million returns, further impacting the 2022 tax filing season
Nearly 24 million taxpayers are still waiting for the Internal Revenue Service to process their tax returns from last year — a number far larger than previously reported by the agency — with many refunds being held up for 10 months or more.
The inventory of unprocessed returns and related correspondence was provided by the IRS’s taxpayer advocate service to the tax-writing committees in Congress. The backlog will probably further slow service in the 2022 filing season; the Treasury Department, the IRS’s parent agency, warned in January that it expected its response to be subpar this year.
The pileup of work that remains from last year, according to three people who spoke on the condition of anonymity because they were not approved to speak publicly, comes as the tax agency struggles to hire and train new staff to clear the logjam. In response, the IRS is considering suspending tax collections and excusing some penalty enforcement.
The troubles also have generated bipartisan angst on Capitol Hill, although lawmakers have found themselves once again torn over how exactly to improve the agency’s performance. A group of 30 Republicans described the situation as “untenable” in a letter sent this week to Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig. But some in the GOP simultaneously are working to block any new federal aid that might help the beleaguered agency — a stance that drew sharp criticism from Democrats on Saturday.
“For decades, Republicans have starved the IRS of funding, and now American taxpayers are paying the price,” said Rep. Richard E. Neal (D-Mass.), the chairman of the tax-focused House Ways and Means Committee, citing the statistics unearthed by The Washington Post. “The backlog of tax returns is but one symptom of the fundamental issue that has been ailing the IRS for too long: inadequate resources.”
The IRS’s productivity plummeted during the coronavirus pandemic as thousands of employees worked from home for months without access to returns, audits and other business — difficulties that followed years of budget cuts. The federal stimulus measures also added to the agency’s workload, as it emphasized getting relief money to millions of Americans. Paper returns took the greatest hit, as mail piled up on trucks outside closed offices for months.
Adding to the challenges, a new report from the IRS inspector general this month found that the agency continues to suffer from severe hiring shortages, inefficient practices and old equipment. That includes mail processing woes, since its systems have “outdated dust collectors” that cause paper jams. Poor scanners, meanwhile, meant the IRS last year missed out on $56 million because of “untimely check deposits,” since the agency could not tell whether envelopes it received contained checks.
As of Jan. 28, the tally of outstanding individual and business returns requiring what the IRS calls “manual processing” — an operation where an employee must take at least one action rather than relying on an automated system to move the case — came to 23.7 million, the taxpayer advocate data shows. The number includes 9.7 million paper returns awaiting processing; 4.1 million that were suspended because of errors with stimulus payments, pandemic relief or other issues; 4.1 million amended returns; and 5.8 million pieces of correspondence awaiting action between the agency and taxpayers to resolve issues before the returns are completed.
In January, National Taxpayer Advocate Erin Collins had reported a backlog of at least 10 million returns based on IRS data. An IRS official, meantime, said the agency counts the inventory from last year’s filing season at about 6 million paper returns for individual taxpayers. Both numbers are far higher than the unprocessed returns the IRS faced before the pandemic — in the past, the agency typically carried 1 million or fewer returns into the next tax season.
But the new data takes into account broader categories of work that have stalled since the pandemic and some returns that have come in this year. Taxpayer advocates, lawmakers and others say the expansive count is more realistic.
“This entire ecosystem of pending cases gives the public a fuller picture of what the IRS is up against,” said Chad Hooper, executive director of the nonprofit Professional Managers Association, which represents hundreds of IRS managers. “And it’s a crazy number before most people have filed their taxes for this year.”
The stockpile does not include audits lingering because of pandemic slowdowns, enforcement and collection actions, appeals of audits, notices of tax liens, penalties or other business in the pipeline, Hooper said.
The vast majority of taxpayers now file their tax returns electronically, and those can generally be processed quickly unless they are flagged for errors, identity theft or other issues. Roughly 10 percent — about 17 million people — still file Form 1040, the traditional individual income tax return, on paper.
The IRS is taking at least 10 months to process paper returns filed for the 2020 tax year, and has caught up only to April 2021 for returns without errors, according to the most recent data on its website. Last year the vast majority of taxpayers — about 77 percent — received refunds.
Because returns are processed in the order in which they were received, “it does mean the 2022 filings made this year are at the end of the line,” Hooper said.
The backlog was formed in part by the mandates placed on the IRS over the course of the roughly two-year pandemic.
Beginning in 2020, lawmakers deputized the agency to send direct pandemic relief checks to millions of Americans, adding immense pressure to act swiftly to help cash-strapped families newly out of work. Multiple stimulus packages approved rounds of such payments, and Democrats last March made an even more work-intensive request: to stand up a system that would distribute monthly tax payments to families with young children.
President Biden and top Democrats proposed boosting the IRS budget, arguing that the agency had been severely underfunded and understaffed for decades before the added responsibilities. But the effort has so far failed to gain enough support in Congress, while talks continue around a new spending deal to fund the government and prevent a looming shutdown.
Democrats and Republicans alike each express confidence they can strike a bargain that funds federal agencies through the remainder of the 2022 fiscal year, which ends Sept. 30. But GOP lawmakers repeatedly have warned Democrats about including “poison pills,” offering a list of nonstarters in October that included proposed increases in funding at the IRS.
Rather than support new funding, Republicans this week called on the IRS to “consider exercising its existing authority” to ease the burden on taxpayers. That would include halting automated liens and other collections processes, particularly until the staff can sort through piles of unopened mail, while better prioritizing the kinds of returns in its possession.
“When our constituents cannot get help from those tasked to administer our tax laws, it diminishes the integrity of our voluntary tax system,” the senators wrote in their letter.
IRS spokeswoman Jodie Reynolds referred questions on the lingering inventory to a letter Rettig sent this week to all 535 members of Congress. Rettig, an appointee of former president Donald Trump, acknowledged an “unprecedented amount of unprocessed tax returns and correspondence remaining in the IRS inventory during 2021.”
But he said the problem has been compounded by a lack of funding to hire new staff and modernize its aging computer software systems, some of which date to the 1960s.
Rettig said he is considering penalty relief for taxpayers. “We will rapidly adapt to changing circumstances, when appropriate to do so,” he said. “We are doing everything we can with all of the resources available to us.”
The agency has already suspended mailing some automated collection notices that are triggered when records show a taxpayer owes taxes and has not filed a tax return. Many of these letters have been sent after returns have been filed but have not been processed.
In January, in a meeting with members of the House Ways and Means Committee, Rettig said the agency was working to get the backlog of unprocessed tax returns back to normal levels by the end of the year, according to a Treasury official who spoke on the condition of anonymity to describe private conversations.
The commissioner announced last week that he was temporarily reassigning 1,200 employees as part of a “surge team” to help. But Collins told the oversight panel of the House Ways and Means Committee this week that the staffing problems are far broader, compounded by recruiting challenges and low pay.
The agency sought to fill 5,000 positions for several campuses across the country in time for this tax season but was able to hire fewer than 200, she said. The situation is so dire that for the first time, officials are offering $500 referral bonuses to employees if a new hire stays in the job for a year.
The agency has one of the government’s oldest workforces. Its submission processing unit — responsible for opening the mail — lost 20 percent of its staff last year to retirements, departures and transfers to other IRS departments, officials said. The Treasury Inspector General for Tax Administration reported this past week that as of August 2021, the IRS faced a total staff shortfall in the submission processing unit of about 2,598 employees. The surge Rettig announced is not going to submission processing, however, but to a department known as accounts management, which is responsible for answering taxpayers’ phone calls and responding to general correspondence.
The watchdog said that although the IRS has several initiatives underway to help address its hiring shortages, “to date these approaches have not been successful.” It urged the agency to delay a planned closure of its processing center in Austin — part of a long-term consolidation as more business is done electronically — “until hiring and backlog shortages are addressed.”
“Just like many industries across the country, jobs are available, but people are not applying,” Reynolds, the IRS spokeswoman, said in an email. “In [our case,] applicants may not like the shifts or pay — many of these are lower graded positions that were below the $15.00 minimum hourly rate.”
The backlog and looming troubles with this filing season led tax preparer groups to form a coalition in recent weeks to pressure the agency for relief.