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Why might there be delays in the IRS providing refunds in 2022?

Just like last year, the Internal Revenue Service is expecting to encounter issues created by the pandemic that could delay the distribution of refunds.

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Why might there be delays in the IRS providing refunds in 2022?

Tax season is right around the corner and already the Internal Revanue Service (IRS) is expecting that the agency will experience delays in the distribution of tax refunds for millions of taxpayers.

This is not the first year the IRS has warned of delays. Last year, the agency postponed the Tax Day for a month after Congress passed the American Resuce Plan (ARP) to give themselves more time to adjust to the changes to the tax code. The changes also required the IRS to re-process millions of returns that had been filed before the legislation was passed.

The ARP also significantly altered the structure of the child tax credit and expanded the responsibilities of the IRS to send monthly payments to millions of families. These additional responsibilities stretched the capacity of the agency which further exacerbated issues already being faced by the agency.

Backlog increased in 2021

The IRS will begin processing tax returns on 24 January, but because of the backlog from 2021, many could face delays in receiving their refund.

Within the IRS sits the Office of the National Taxpayer Advocate (NTA), which supports the public by ensuring the agency carries out its mandate in a fair and effective way. In the office's annual report submitted to Congress, they detail the efforts of the IRS in 2021, saying that it was "the most challenging year taxpayers and tax professionals have ever experienced."

Last year because of the additional tax credits and benefits able to be claimed more people filed a return, and around seventy-seven percent were able to receive refunds. The report noted that the delays in processing for tens of millions of taxpayers, "translated directly into refund delays." These delays "have a disproportionate impact on low-income taxpayers," many of whom were entitled to larger returns last year.

How many tax returns are still backlogged?

The report also highlights how paper tax returns have created a backlog, that has continued to grow over the last few years. "Paper is the IRS's Kryptonite, and the agency is still buried in it," said US National Tax Payer Advocate Erin M. Collins.

The agency has reported that as of December, the backlog has reached more than "6 million unprocessed original individual returns (Forms 1040), 2.3 million unprocessed amended individual returns (Forms 1040-X), more than 2 million unprocessed employer's quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence."

The agency does not see this as a strong position to enter the tax season in and is already warning that more delays should be expected. Collins has also stated that the "number of returns suspended and requiring manual processing is likely to be high again in 2022," because the tax landscape remains more complicated than in years past.