Tax time

The IRS is still working through last year’s backlog. Here’s what to know about your taxes this year

The snow is melting, the days are warmer and daffodils are blooming. Yet along with springtime whimsy comes tax season, and this year’s is stacked with complications for many tax filers.

Even in a regular, non-pandemic year, tax season can be complicated. Add 2021’s Child Tax Credits, stimulus money, unemployment checks and various other pandemic-related circumstances, and the filing process can become truly labyrinthine.

In 2021, more than 160 million people filed individual tax returns, the most ever, according to IRS data. The agency expects more than 165 million to file this year. That’s in part because many who don’t normally file, including very low-income people, did so in 2020 in order to claim an economic stimulus payments the government disbursed that year, IRS spokesperson Raphael Tulino said.

Around 75 percent of filers get refunds every year, Tulino said, and as of December, more than 6 million people were still waiting for refunds for their individual returns for the previous year. And according to a report released by National Taxpayer Advocate Erin M. Collins, an independent government IRS watchdog, people with low incomes are most affected by refund delays. That’s because many families rely on their tax refunds for “basic living expenses,” the report says. “…The financial impact can range from mild inconvenience to severe financial hardship.”

Here’s what filers need to know as this year’s April 18 filing deadline approaches.

How will the pandemic affect this year’s tax season?

There is no historical precedent for such a substantial shakeup to taxes, said Caroline Bruckner, a tax professor at American University’s Kogod School of Business. The country’s federal income tax system is only about a century old, and never in its history has the government directly deposited so much aid into so many Americans’ accounts. In 2021, that aid consisted, in part, of the monthly Child Tax Credit payments and up to $1,400 in stimulus money, per person, in March.

Both filers and the IRS will have to pay close attention to make sure all the money is accurately reported and reconciled. People might be owed more, for example, based on a change in income or dependents from one year to the next, Tulino said.

The agency will have to contend with the substantial task despite being understaffed and underfunded, according to the watchdog report.

The report notes that “[t]he imbalance between the IRS’s workload and its resources has never been greater.” Since Fiscal Year 2010, the IRS’ workforce has shrunk by 17 percent, largely because of a yearslong hiring freeze between 2011 and 2018 as well as retirements. Adjusting for inflation, the report says, the IRS’ budget has decreased by about 20 percent since 2010. Meanwhile its workload – as measured by the number of individual return filings – has increased by 19 percent.

According to that same report, many who tried to call the IRS for help very rarely got the aid they needed. Only one in nine callers ever actually spoke to an IRS employee last tax season, and those who did get through waited on average 23 minutes before someone picked up.

READ MORE: IRS commissioner testifies on 2022 tax season in House hearing

IRS employees also have to manually open and sort through all the paperwork for mailed-in paper returns, which takes substantially more time and effort than receiving electronically submitted returns. In 2021, IRS data shows about 90 percent of tax returns were filed electronically.

“Opening the mail is opening the mail, right? You can’t automate that completely, or at least they haven’t to this point,” Bruckner, the American University professor, said.

“When you consider what we have demanded of our tax system as part of the pandemic response, it is unbelievable it has not collapsed entirely.”

What can filers do to get returns prepared and processed cheaply and quickly?

There are a few key ways preparers can make sure they’re getting their returns right. First, there are several programs that can help people prepare and file taxes, including the IRS’ Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.

The VITA program offers free tax help to those who make $58,000 a year or less, live with disabilities or speak limited English. The TCE program helps those who are 60 years of age or older, and, according to the IRS’ website, specializes “in questions about pensions and retirement-related issues unique to seniors.” Both programs are managed by the IRS and staffed by IRS partners and volunteers (including Bruckner, who volunteers at Community Tax Aid in Washington, D.C.).

People with adjusted gross incomes of $73,000 a year are eligible for the IRS’ Free File program, under which simple tax returns can be filed for free through partner organizations (adjusted gross income is pay minus deductions, such as student loan interest payments or contributions to retirement plans). In 2019, a ProPublica investigation found TurboTax was intentionally making it more difficult to find their true free program. TurboTax is not offering Free File this year.

But for those who are worried about getting upsold at the last minute, the IRS’ Free File portal will take preparers directly to the free programs.

The agency also warns about unscrupulous “ghost preparers,” who will help prepare returns but won’t sign them or include a valid Preparer Tax Identification Number (PTIN), both of which paid preparers are legally required to do.

“Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund,” the IRS has said.

To make sure you’re working with a reliable preparer, visit the agency’s directory, which lists credentialed and qualified preparers.

Filers can also take a few key steps to ensure that if they qualify for a refund, it’ll come as soon as possible. First, Bruckner said, filers should triple check that their returns are accurate and that all their direct deposit information is correct. If money is accidentally deposited in the wrong bank account, it can’t be fixed, she said.

READ MORE: FTC sues Intuit to stop misleading ‘free’ TurboTax filing ads

The IRS is also emphasizing that filers should submit their tax returns electronically and get refunds via direct deposit, if possible, Tulino said. It’s easier for the agency to process and should get people refunds faster.

What about the CTC, unemployment and the stimulus payment – how should filers take those into consideration?

All three of those types of payments can affect how people file their taxes or the amount they owe or receive as a refund, said Elaine Maag, a senior fellow at the Tax Policy Center who also volunteers at a VITA site.

Congress structured the one-year increase for the Child Tax Credit so filers could choose to receive some of the credit in advance via monthly payments between July 2020 through Dec. 2020. Those filers will receive the remainder of the tax credit as a lump sum on this year’s tax returns (or have the amount deducted from what they owe). For very low-income filers, if they’ve received more than they’re actually owed by the government, they won’t have to pay it back (that income threshold is $40,000 for single filers, $50,000 for joint filers and $60,000 for married, widow or widower filers).

That’s also true for stimulus payments, which hit most people’s accounts just about a year ago. Tax prep software will ask filers if they received an economic stimulus payment, and if so, how much. Filers should have received a letter from the IRS noting they received stimulus money, and can also check their online accounts. Eligible taxpayers who didn’t receive that last $1,400 check — or who didn’t get the right amount, such as people who had children in 2021— should indicate that when filing so the money can be included as part of their refund. Neither the Child Tax Credit nor the economic stimulus payments are considered taxable income.

Just like the Child Tax Credit, Maag said, if the government accidentally overpaid someone in a stimulus check, there’s no provision in the law that requires filers to pay the government back.

But while the stimulus checks and Child Tax Credit are generally a net positive for filers, unemployment payments might end up reducing refunds or increasing the amount a filer owes, Maag said, particularly for people who didn’t elect to have taxes taken out up front.

“At least at the beginning of the year, a fair amount of people [were] receiving unemployment insurance payments and those are generally taxable,” Maag said.

“It can be a little bit of a surprise when you go to file your tax return and realize you owe taxes. It’s different from wage income where taxes are taken out, and hopefully, you know, just about the right amount.”

Maag also said that filers can use their 2019 incomes to calculate the Earned Income Tax Credit this year. This is important for people who might have worked a moderate-income job in 2019 but were out of work, or worked less, in 2021. The EITC phases in as earnings increase, so “the year with the higher earnings will give you the higher credit,” Maag said. Filers will need to access their 2019 tax forms to identify that year’s income.

One final thing Bruckner advises is for people to keep track of any income they bring in from side hustles or gigs, regardless of whether they received a tax form for the money.

“In many cases you can get credit for Social Security purposes when you report and pay self-employment tax on that income. And that’s really key,” Bruckner said.

If one spouse in a married couple works full time, and the other does not, but still gets income from a side gig, both should report the income, she said. It’s not likely the spouse will owe much tax money on that income, but it will still count toward Social Security.

If you need tax filing help, you can find an IRS-approved VITA site near you.

The IRS also has a website for Free File programs. You can browse all options here, find which offer is available to you here or find general information here.