If you’re an average, run-of-the-mill American taxpayer, you can sit back and relax. As the April 18 tax day deadline looms, e-filing is easier than ever and the Internal Revenue Service (IRS) is operating at a steady clip. As of April 1, the agency had issued 63 million refunds worth over $204 billion; in nine out of ten cases, those refunds were issued in 21 days or less. “This has been a very smooth and mild year,” says Mark Steber of Jackson Hewitt, a tax preparation service.
But if you’re in the roughly 10% of 160 million Americans taxpayers whose filings are even remotely complicated—due to identity theft, an avoidance of electronic filing, or some other hiccup—you’re pretty much out of luck. Because such taxpayers can’t e-file, they must submit their returns by paper, triggering a review process that could stretch into 2023. While the vast majority of taxpayers won’t be affected, millions will.
“10% of 160 million,” IRS’s National Taxpayer Advocate Erin Collins tells TIME, “is still 16 million [families].”
This paper filing problem is worse this year thanks to a recent uptick in identity theft, a trend driven in part by pandemic-era increases in government benefits, including the expanded Child Tax Credits and expanded unemployment. Scammers, hoping to cash in on larger-than-typical refunds, have seized on stealing strangers’ identities in order to e-file their taxes. “When you have the government pouring tons of money into the economy, the IRS has got a target on its back,” says Nina Olson, the IRS’s former independent National Taxpayer Advocate from 2001 to 2019, adding that she expects to see identity theft rates higher than is normal again this year. “Thieves,” she adds, “are opportunistic.”
When a scammer fraudulently e-files a tax return, the real person whose social security number has been used is catapulted into a bureaucratic hellscape. Because only one tax return can be filed electronically per Social Security Number per year, when victim attempts to e-file, they are met with an error message alerting them that a return has already been filed in their name. They are directed instead to file by paper. Because the IRS does not have an automatic, machine-based system to process such filings, a real human has to manually enter information from each paper tax return into an IRS computer. And that takes months.
Collins says the goal is for this years’ paper-filed returns to be processed by the end of the 2022 calendar year. But that may be wishful thinking, due to an already-formidable backlog at the IRS, fueled in part by complicated, pandemic-era legislation, including three rounds of stimulus checks, which came with varying definitions of dependents and multiple changes to how the IRS calculates a business’ net operating losses. These modifications required millions of taxpayers to file amended returns or addendums to take full advantage of the pandemic changes and benefits, resulting in a backlog of 23 million returns requiring some sort of manual processing left over from the 2021 tax filing season at a time when the IRS is least equipped to manage it.
The IRS is considering ways it which it can expedite how it processes paper returns, and on ways to mitigate fraud, but those proposed solutions don’t help people who are going to have to wait the better part of a year to see that refund check this year.
A negative feedback loop at the IRS
The IRS is already struggling to maintain and hire enough employees to do the labor intensive work of processing the increased number of paper returns. From 2010 to 2020, the IRS lost nearly 35,000 full-time employees. In roughly the same time period, the IRS’s budget was reduced by nearly 20% in inflation-adjusted dollars.
Taxpayers, meanwhile, can’t get the answers they need. During the 2021 tax filing season, the IRS received 171 million phone calls; taxpayers were able to connect with an IRS employee in only about 9% of cases. The lack of communication creates a negative feedback loop: taxpayers who can’t get in touch with the IRS grow concerned that their paper-filed tax return forms were not received via mail, causing them to file more returns, amendments, and correspondence by mail, which further bogs down the already beleaguered system.
“What we saw was kind of a circular impact,” says Collins, describing the 2021 tax filing season. Filers “wrote more paper correspondence, or filed another return, which of course hadn’t gotten processed. So they picked up the phone again. It became a round and round and round [cycle].”
For some, all of this amounts to an annoying headache. For others, delayed processing times and difficulty connecting with the IRS can mean severe financial distress. About 30% of families count their annual tax refund as their largest cash infusion of the year, according to a 2019 study by JP Morgan Chase Institute. Meanwhile, roughly a third of taxpayers who are owed refunds apply them towards personal debt; almost another third relies on the deposit for everyday expenses like groceries and rent.
And for those that owe money to the IRS, delays in the agency withdrawing the taxpayers’ funds can also be anxiety inducing. Evan Schultz, a 26-year-old from a Columbus, Ohio suburb, is in that boat.
Because her husband was an independent contractor last tax year, they owed money in taxes to the federal government. Upon discover her identity was stolen, she was required to file by paper. But that 2020 tax return, which requested installment payments, still hasn’t been processed. Her family doesn’t know when the tax debts will be withdrawn from her account or how big those increments will be. “We have this really large tax bill hanging over our heads that we can’t do anything about. You can’t you can’t get a hold of anybody at the IRS—you get routed through 6,000 different robo-calls and then an automated system says, ‘Oh, we’re too busy to take your call,’” says Schultz. “There’s just this overarching sense of dread, waiting to see when [the bank withdrawal] shows up.”
The IRS is taking steps to mitigate the delays: First, it has recently made a tool called the Identity Protection PIN, a six-digit number that prevents someone else from filing a tax return using your Social Security Number, available to all taxpayers. This tool would prevent someone from e-filing in your name, which would require you to file by paper and wait an extended period of time for your return. (A caveat to this tool is that your PIN comes via mail; if you lose that form, you’ll have to file a paper return.)
Additionally, the National Taxpayer Advocate is requesting the IRS modernize how it processes paper returns, either through a barcode-like system that taxpayer services like TurboTax would be asked to affix to their paper forms, or by Optical Character Recognition (OCR), a software tool that helps a computer convert written or printed text to a digitally readable format.
As the IRS is still working its way through last year’s paper returns without these tools in place, those who chose—or were required—to file by paper this year will likely be waiting for their tax refund for months.
Collins hopes it’s the last year that’s the case. “I told the IRS, ‘I don’t care what technology you use,’” just get it in place and get it in place by next filing season,” she says, speaking of the proposed barcode and OCR solutions, “because we cannot continue down this route.’”
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