As tax deadline arrives, IRS still has millions of unprocessed returns from last year

The last weekend for Americans to file their taxes before the Monday deadline is here, but the Internal Revenue Service still faces major backlogs for individual and business filings.

IRS Commissioner Charles Rettig testified before Congress last month, promising to clear through the 20 million unprocessed 2021 tax returns by the end of 2022. He cited an array of reasons for the backlog, including "new responsibilities," delays in modernization and uncertainty about funding that slows down hiring.

"When we are confronted with long-term Continuing Resolutions (CRs), we typically freeze nearly all external hiring," he said. "We take this action to ensure we have funds to pay all employees, including any applicable pay raises. Last fall, we increased staffing in our Wage & Investment Division (W&I) despite the CR, hiring at risk without the funding in place to support these positions, but assuming future resources would be provided by the eventual enactment of the FY2022 appropriation, to help address our inventory."

Observers say President Joe Biden's trillions of dollars in social spending passed through Congress overwhelmed the IRS last year. The agency was tasked with distributing and tracking much of the money, such as the stimulus payments and the monthly child tax credit to qualifying families.

"The problems the IRS is having primarily stems from Congress putting the responsibilities for distributing pandemic-era social programs on an agency that's supposed to exist for revenue collection, not benefit administration," said Alex Muresianu, a tax expert at the Tax Foundation. "The effects of that disconnect only got worse during the pandemic: The various relief measures (CARES, the appropriations law in early 2020, ARP) increased the IRS' administrative responsibilities enormously, making them responsible for distributing hundreds of billions of additional dollars.

"And while they did receive a budget increase to try and make that process smoother, it's tough to upgrade their capacity that quickly."

Rettig's testimony seemed to back up this idea at least in part with several references to the increased workload for the agency.

"We continue to balance multiple unprecedented demands, including starting the filing season as well as continuing to work on important new tax provisions," Rettig said. "And we remain focused on numerous taxpayer-related issues and have pursued innovative ideas and processes not previously deployed by the IRS in an effort to make improvements to the current inventory and provide meaningful taxpayer services. The reality at the IRS is that we know we need to do better; we're committed to doing better, and we are trending in a positive direction."

Republicans have blasted the Biden administration for these backlogs, saying they should have been corrected by now. Republicans on the House Oversight Committee sent a letter to the IRS pointing to "COVID-19 related telework policies" allowing most IRS employees to work remotely as well as outdated software.

"For many Americans, their tax refund can equal six weeks of take-home income," the letter said. "The volume of tax returns and refunds completed each year shows the far-reaching impact that processing delays could have for the average American. Processed returns are also essential for those who may be entitled to apply for other government benefits such as loans administered by the U.S. Small Business Administration. It is therefore imperative that the IRS take steps to mitigate any processing delays, which can delay refunds and access to economic relief programs."

The IRS issued an "urgent reminder" at the beginning of this year telling Americans to file electronically "to help speed refunds" this year. Rettig published an op-ed in Yahoo News last month echoing that tone.

"As the IRS begins this tax season, it continues to face enormous challenges," he wrote. "Our dedicated workforce has done everything it can to prepare for filing day on April 18. Today, millions of people are still waiting for prior years' returns to be processed, and refund checks to arrive in the mail, while preparing for their upcoming tax filing. While we can't immediately solve these significant issues, our employees are doing everything they can, and I am committed to returning to normal inventory levels before next year."