Youf you’re an average, run-of-the-mill American taxpayer, you can sit back and relax. E-filing, which is now possible as the tax day deadline of April 18, is becoming more difficult than ever. The Internal Revenue Service (IRS), however, is continuing to operate at a constant pace. On April 1, the agency had issued over 63,000,000 refunds in excess of $204Billion. In nine of ten cases those refunds were made in under 21 days. “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].”
The recent rise in identity theft is making paper filing more difficult this year. This trend was driven partly by the pandemic-era increase in government benefits such as expanded Child Tax Credits, and increased 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.”
A scammer can fraudulently file a tax return electronically. This will send the victim’s social security number into chaos. A victim can only file one electronic tax return per Social Security Number each year. When they attempt to e-file, an error message warns them that the return was already filed. Instead they are told to go paper. The IRS doesn’t have an automated, machine-based process for processing such filings. Instead, an actual human must manually input information from every paper tax return into the IRS computer. It can take several 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. Millions of taxpayers were required to modify their tax returns and addendums in order to fully take advantage of the pandemic effects. The result was a backlog that reached 23 million, which meant manual processing is needed.
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.
The IRS has a negative feedback loop
It is currently difficult for the IRS to keep and recruit enough staff to process the increasing number of paper return processing. The IRS has lost almost 35,000 employees between 2010 and 2020. 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. The IRS received approximately 171,000,000 phone calls in 2021 for tax filings. In 9% cases, taxpayers were able connect to an IRS worker. 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. Then they picked up their phone once more. The conversation went on for many more rounds. [cycle].”
All of it can be a frustrating headache for some. Some people can experience severe financial difficulties due to delays in processing or difficulty connecting with IRS. A 2019 JP Morgan Chase Institute study found that 30% of families consider the annual tax refund to be their largest cash source. Around a third of the taxpayers who owe refunds put them toward personal debt, while almost another third rely on the cash deposit to cover everyday expenses like rent and groceries.
And for those that owe money to the IRS, delays in the agency withdrawing the taxpayers’ funds can also be anxiety inducing. Evan Schultz (26-year-old) is from Columbus, Ohio.
Her husband had been an independent contractor in the last tax year and they owed taxes to federal government. Her identity was stolen and she was then required to file 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 making efforts to reduce delays. First, they have recently created an Identity Protection PIN tool, which is a 6-digit number that stops someone from filing your tax return under your Social Security Number. It’s available to taxpayers everywhere. You would need to file your tax return by hand and have to wait a long time before someone else can efile under your name. (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.)
In addition, the National Taxpayer Advocate requests the IRS to modernize its paper-return processing. The IRS could use a barcode-like system to which tax services like TurboTax would need to affix paper returns or opt for optical character recognition (OCR) software that converts written and 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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