As we mark the first US individual tax return filing deadline of the 2021 tax year (18th April), for many US taxpayers, the 2020 tax year has not yet been resolved.
Backlogs at the IRS have reached unprecedented levels, discussed in my article on the subject last year.
The current processing backlogs have been building for a number of years, and have only intensified as a result of the pandemic.
Whilst for many US taxpayers, knowing whether the IRS has processed their return yet is of little concern, for those awaiting refunds, the delays are far more frustrating.
Amongst our clients, a significant amount are currently awaiting refunds, in some cases nearly 12 months have passed since filing their 2020 return.
If you’re a US citizen currently awaiting a refund from last year, you’re not alone.
On 7th April, IRS Commissioner Charles Rettig provided an update to the Senate Finance Committee on the current state of affairs at the IRS, and how they organisation intends to improve its efficiency.
Mr. Rettig disclosed that as at 31st March 2022, the IRS had 2.3 million returns filed during 2022 that were yet to be processed. More concerning, is that 2.7 million returns which had been filed during 2021 are also still also awaiting processing. In addition to this, there are a further 2.1 million returns that have not been processed, but the timeframe that they have been waiting was not disclosed. For US taxpayers living in NZ or Australia awaiting an IRS refund, it is likely that any delays are related to this severe backlog.
On a more positive note, Mr. Rettig advised that the IRS’ error resolution system is clearing its cases much more quickly, with 741,000 pending cases, as opposed to the 7.7 million backlog at the same time last year. Most importantly, clearing the error backlog is freeing IRS staff up to assist with return processing.
One major issue facing NZ US taxpayers awaiting refunds, are the difficulties in obtaining any form of update from the IRS. The IRS “Where’s My Refund” system is (ideally) supposed to provide a real-time update on the current status of a refund, however the system can only display information for tax returns which have been processed, while those which have not yet been processed will return no result with the tool. As such, the tool doesn’t provide any useful information for most taxpayers experiencing this delay.
Instead, many clients and taxpayers have resorted to calling the IRS to obtain an update, but again are likely to have experienced similar issues. Mr. Rettig advised that currently only around 19-20% of calls to the IRS are being answered, with most being cut off or the caller giving up.
Due to improved funding under Joe Biden’s 2023 budget, the IRS is targeted at answering 85% of calls going forward. Mr Rettig also holds optimism, advising “We would like to be at 100%,” but cautiously stated they expect to answer a “meaningful percentage of calls,” reflecting a “healthy” taxpayer experience during calendar 2022.
Fortunately, significant strides are being taken to help clear this backlog and prevent it occurring in future. The IRS are now well progressed with their goal of hiring a further 5000 employees by the end of the year.
Overall, whilst the position of the IRS is gradually improving, it will still be some time before NZ or Australian based US citizen taxpayers see any noticeable improvement in processing timeframes. But, importantly, things are moving in the right direction.
If you’re currently awaiting a refund from a 2020 tax return, remain patient for now in the knowledge that you’re amongst potentially millions of others in the same position. Expect to see progress this year however.
As always, US Global Tax are here to help with any questions or tax filing assistance. Contact our specialized Auckland NZ-US office on 09-373-2949, or Australian office on+61-2-9211-7130