Haven't Received Your Tax Refund Yet?

Article Highlights

Slow Refunds
COVID-19
Economic Impact Payments
Recovery Rebates
Unemployment Debacle
Using 2019 Income to Compute 2020 EITC and Additional Child Tax Credit
Other Issues
Where’s My Refund Tool
IRS May Pay Interest on Late Refunds

You are not alone. We have been hearing from clients who are still waiting on refunds from returns filed early in the year. In normal times, unless there is an error, the IRS will issue most refunds in less than 21 calendar days. However, 2021 is far from being a normal year for a number of reasons.

COVID-19 – Unlike most other employers that had to deal with the COVID-19 outbreak, IRS employees could not work from home because the computer system can only be accessed from IRS facilities. Thus, during 2020 and 2021 many IRS employees were furloughed. And the IRS got significantly behind in processing returns, especially paper-filed returns that must be input manually. As a result, the IRS was still processing 2019 returns at the beginning of the 2020 return filing season.

Economic Impact Payments – Congress ordered the IRS to handle the task of issuing three economic impact payments, two in 2020 and one in 2021, tapping IRS resources.

Recovery Rebates – To make matters worse, those first two economic impact payments had to be reconciled on the 2020 tax return, and if a taxpayer didn’t receive the amount they were entitled to, they were allowed an equivalent recovery rebate credit on their tax return. If there is a discrepancy between the amount of the payments reported on the tax return and what the IRS has on file for the economic impact payment amounts, the IRS is manually verifying the tax return for credit eligibility, which is delaying refunds.

Unemployment Debacle – In March 2021, Congress, after the 2020 tax filing season had gotten underway and millions of taxpayers had already filed their returns, decided to make a portion of the unemployment compensation taxpayers received in 2020 tax-free. The IRS, in order to avoid millions of amended returns from being filed, has undertaken the task of automatically adjusting those returns and issuing refunds.

Using 2019 Income to Compute 2020 EITC and Additional Child Tax Credit – The EITC and the additional child tax credit are based on a taxpayer’s earned income (income from working). However, because a preponderance of those who normally benefited from EITC and the additional child tax credit were unemployed during 2020, Congress allowed the 2019 earned income to be used in computing those credits for 2020, which also is causing processing delays.

Other Issues – Other issues that cause delays in disbursing refunds include returns that are filed with missing information, those affected by identity theft and fraud, those filed with an injured spouse allocation on IRS Form 8379 (which can take a minimum of 14 weeks to process) and returns that warrant further review for other reasons.

You can use the IRS’s online tool “Where’s My Refund” to determine the status of your refund. To use that tool, you will need:

Social security number or ITIN
Your filing status
Your exact refund amount

Generally, the IRS will pay interest on the refund due you starting from the later of the date:

The return was filed.
The return is received by IRS if it was filed after the due date.
The IRS received the return in a format they can process. The IRS stops paying interest on overpayments on the date they issue the refund or it is used to offset an outstanding liability.

Currently, the interest rate the IRS pays individuals on overpayments is 3%; the rate is adjusted quarterly but has been at 3% since July 1, 2020.

Exception: No overpayment interest is paid if the IRS issues the refund within 45 days of the return due date, or the actual filing date if later.

As you can see, refunds are not being issued as quickly as they were in years prior to COVID and there is not anything a tax preparer or taxpayer can do about the IRS not paying out refunds once a return is electronically filed and accepted by the IRS.