Smart Tax Planning

Here's why you haven't received your tax refund

Key Points
  • The IRS has received 136.5 million individual income tax returns as of June 12, off by 5.3% from last year. However, it’s only processed 124.6 million returns, which is down by 12% from a year ago.
  • Paper returns, as well as documents that warrant additional verification from the taxpayer, take time for the IRS to ingest.
  • Tax refunds can be a significant source of cash in a crunch. The average refund is $2,767, according to the IRS.
10'000 Hours

For those who desperately need tax refunds, it can feel like ages before they get the money. 

For an unlucky few, the wait has taken months.

"We filed a client's return, and it was accepted on April 14," said Nayo Carter-Gray, an enrolled agent at 1st Step Accounting in Towson, Maryland.

"He finally received a notice that the refund is scheduled to hit on June 17," she said.

Big money is at play. The IRS distributed an average refund check of $2,767 as of June 12. In comparison, the agency delivered stimulus checks of up to $1,200 per individual, plus $500 for each qualifying child.

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"Some clients haven't received refunds yet, but they did receive stimulus payments," said Carter-Gray. "In the midst of the IRS shutting down and teleworking, there's kind of a gap there."

Most returns are e-filed, with nearly 124 million individual returns coming in electronically as of June 12, according to the IRS.

However, returns that were submitted on paper or those that require additional verification with the taxman, can take longer to digest, even in good times.

Processing those returns became even more complicated amid the coronavirus pandemic, which led to IRS employees staying home.

"Something on the return or in taxpayer accounts tripped manual review with no eyes available to process," said Ann E. Kummer, CPA and partner at Kirshon & Co. in Poughkeepsie, New York. Two of her clients are still awaiting refunds. One filed in March and the other in early May.

What's the hold-up?

10'000 Hours

Paper returns must be manually entered into a computer, which makes them labor-intensive.

When the IRS sent its workforce home amid the coronavirus pandemic, there were fewer individuals on hand to pick through the documents.

Meanwhile, taxpayers can also get caught up in the process of verifying details of their returns with the agency.

In that case, ID verification can involve mail correspondence – wherein a filer might submit supporting documents – and talking with a human operator at the IRS, said Kathy Morgan, an enrolled agent with Puzzled By Taxes in Shreveport, Louisiana.

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Even before coronavirus became a problem, returns that would set off fraud flags would take longer to process.

Indeed, last year a new fraud filter caught up about 1.1 million tax returns from Jan. 1 through Sept. 26, according to a report from the Taxpayer Advocate Service, an IRS watchdog. 

These taxpayers claimed the earned income tax credit or the additional tax credit, or were missing information from Form W-2 , the document employers provide, which has details on salary paid and taxes withheld for the prior year.

About a quarter of these were held for 40 days or longer, according to the agency.

Under normal circumstances, it takes up to three weeks to process a return that's been e-filed and deliver a tax refund, according to the IRS.

A slow return to normal

The Internal Revenue Services offices in Washington, D.C.
Adam Jeffery | CNBC

IRS employees have been returning to the office in waves to gear up for the rapidly approaching July 15 tax deadline.

Just this month, workers reported to their buildings in Utah, Texas, Kentucky, Michigan, Georgia, Missouri and Tennessee, according to the National Treasury Employees Union.

Employees in California, Indiana, Ohio, Oregon and Puerto Rico are expected to report to work on June 29, according to the union.

More from Smart Tax Planning:
These red flags will catch the attention of the IRS
More people will be able to take a coronavirus withdrawal from their 401(k)
Seven states that might give you a break for working from home

The agency isn't at full capacity yet, and the IRS said on June 18 that certain services, including live assistance on the phone, responding to correspondence and processing paper returns – are extremely limited or suspended.

"We've been processing e-filed returns throughout the spring, and we have already begun processing paper returns, too," said Eric Smith, a spokesman for the IRS.

What you should know if you're gearing up to file:

Get organized: Missing documents or mismatches between data on file at the IRS and what's on your return can lead to your return being flagged for further examination.

Avoid typos: "If you can import information through your payroll provider, we recommend it," said Mark Jaeger, director of tax development at TaxAct. "But if you need to type it in, take your time."

Filed on paper and still waiting? Don't file again. "I'm leery of how long it will take the IRS to sift through the mail, and you really can't file again," said Kummer. "You should be talking to your tax professionals, whether an enrolled agent or a CPA for some help."

File electronically, if you haven't already submitted a return. Continue to monitor your status: Head over to the Where's My Refund page on IRS.gov or call 800-829-1954, said Smith, the agency's spokesman.

"I think the most positive thing we can say now is that the IRS is back to work, and they are processing everything now, whereas for the last 8 to 10 weeks, everything's been sitting there," said Morgan of Puzzled by Taxes.

"That doesn't give them a timeline, but at least there is forward momentum at the IRS."

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