2020 taxes: Do you owe taxes on stimulus checks or unemployment?
Because of the coronavirus pandemic, 2020 may be a tax year like no other. Here are answers to some of your top questions.
Staff video, USA TODAY
The Internal Revenue Service is holding 29 million tax returns for manual processing, contributing to more refund delays than are typical in a normal filing season due to sweeping tax code changes, limited resources, outdated IT systems and a backlog of unprocessed 2019 paper tax returns, according to Erin Collins, the National Taxpayer Advocate.
“As one would expect, IRS employees are stretched thin working through the manual processing of these returns,” Collins said Wednesday. “So if a taxpayer’s return is pulled for manual processing, there will be delays.”
Typically, the IRS sends most refunds within 21 days or less of taxpayers filing their return. But for some early filers, the wait for a tax refund has been six weeks to eight weeks already.
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Of the nearly 30 million returns being held for manual processing, more than 8 million individual returns were in “suspense” status awaiting review and manual processing, as of the week ended April 9.
Why? The $900 billion stimulus package signed into law in December, known as the Consolidated Appropriations Act of 2021, didn’t leave the agency enough time to prepare for some of the tax code changes before the delayed filing season began Feb. 12.
IRS grapples with challenging tax season
December’s stimulus legislation had included an “income look back” rule that allowed taxpayers to use their 2019 income to calculate their eligibility for the Earned Income Tax Credit or the Additional Child Tax Credit on their 2020 tax return.
Both are refundable tax credits for low- to moderate-income working individuals and couples, particularly those with children.
Because the IRS didn’t have enough time to update its computer systems following the tax code change, a manual review of a tax return is required if a taxpayer used the 2019 “income look back” rule to calculate those credits, according to Collins.
“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 systemic processing of returns where taxpayers elected to use 2019 income,” Collins said. “Thus, the IRS had to create a manual process instead.”
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Agency reviews inconsistencies with Recovery Rebate Credit
Any inconsistencies between the IRS’s records for stimulus checks, or Economic Impact Payments, along with the Recovery Rebate Credit on a taxpayer’s 2020 return would also require a manual review and corrections before processing, according to Collins.
Some taxpayers have claimed the Recovery Rebate Credit if they were eligible for any remaining stimulus money from the first two rounds of payments when they file their 2020 returns.
Any corrections to the Recovery Rebate Credit or verification of the 2019 “look back” election are being manually processed by the IRS’s Error Resolution System. The IRS is placing those returns in “suspense” until an IRS employee can review them to verify their 2019 income or their prior Economic Impact Payment. The return is essentially in a queue waiting to be reviewed and processed.
To put that into perspective, the IRS’s ERS unit doesn’t suspend returns during a normal filing season when it’s fully operational since it is able to review and process them as they come in, according to Collins.
The IRS will automatically correct miscalculations taxpayers make when claiming their first and second stimulus checks on their 2020 tax returns, the agency said in early April.
There’s a backlog of unprocessed paper tax returns
An additional 3 million being reviewed are individual 2019 and 2020 paper returns. Plus, 7 million more individual returns have processing errors or fraud identification issues requiring responses from taxpayers. And another 11 million business and other returns have been held for manual processing.
The National Taxpayer Advocate has urged the IRS to provide taxpayers with more specific information so they know what to expect and, where possible, they can make adjustments to manage their finances.
“Specifically, to ease taxpayer concerns, the IRS should be more transparent and specific regarding the status of taxpayer refunds,” Collins said.
The Taxpayer Advocate Service has previously recommended that the “Where’s My Refund?” tool and IRS2Go mobile app should provide taxpayers with more specific information regarding the status of their refunds, rather than stating that refunds are “being processed.”
Taxpayers can use the “Where’s My Refund?” tool to check the status of their tax refund by entering their Social Security number or ITIN, filing status and their refund amount.