IRS is holding over 29 million tax returns, delaying refunds for many poorer Americans

The Internal Revenue Service is holding 29 million returns for manual processing — delaying refunds for many — because of pandemic-related law changes, processing errors, and fraud detection.

“As one would expect, IRS employees are stretched thin working through the manual processing of these returns,” National Taxpayer Advocate Erin Collins wrote in her blog. “So if a taxpayer’s return is pulled for manual processing, there will be delays.”

More than 8 million individual tax returns are in suspense status because of their stimulus payment or the Earned Income Tax Credit (EITC) or the Child Tax Credit (CTC).

On some returns, there was an inconsistency between the stimulus payment the taxpayer received and the amount claimed on their return as Recovery Rebate Credit. On others, the taxpayer used the 2019 “look back” rule to calculate their EITC or the CTC, and the IRS must verify that calculation.

Additionally, 3 million are individual 2019 and 2020 paper returns that must be worked through, while 7 million individual returns have errors or are going through the fraud detection process. An additional 11 million business and other returns are also being held for manual processing.

'The IRS was unable to timely adjust'

The $900 billion stimulus deal signed into law in December allowed taxpayers to use their 2019 or 2020 income to determine eligibility for the EITC and CTC this year, but didn’t leave enough time for the IRS to prepare for the change before the filing season began.

“Due to the late passage of the law, the IRS was unable to timely adjust its forms and computer systems before the start of the filing season to allow for systematic processing of returns where taxpayers elected to use 2019 income,” Collins wrote. “Thus, the IRS had to create a manual process instead.”

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Additionally, the IRS said it will automatically correct miscalculations taxpayers make when claiming their first and second stimulus checks on their 2020 tax returns, but that may cause delays. Taxpayers who were eligible for a stimulus check but didn't get one or didn't get the full amount can claim this as a Recovery Rebate Credit on their federal tax return.

While the IRS warned about possible delays for some refunds, the agency didn’t specify why claiming the EITC or CTC would require further review. The IRS advises taxpayers to check the status of their return online, but that often provides insufficient information, according to Collins.

“The usefulness of this advice is limited,” Collins wrote, “since these tools only tell taxpayers that their return is being processed, but fail to provide any details as to whether they need to provide additional information or when the refund will be released.”

Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

Read more:

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  • Many taxpayers are still waiting to get last year’s tax refund

  • Rich Americans avoid taxes even more than anyone realizes, analysis finds

  • Read more personal finance information, news, and tips on Cashay

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