At least 8 million tax returns are in limbo at the IRS because of the pandemic, delaying refunds (2024)

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• Erin Collins, the National Taxpayer Advocate, said this filing season has been "challenging at best."
• As of April 9, the IRS had over 29 million tax returns set aside waiting to be manually processed.
• That includes 8 million returns for people claiming the Recovery Rebate Credit and EITC.
• See Personal Finance Insider's picks for best tax software »

The Internal Revenue Service has been stretched to the limit.

In addition to typical tax-season duties, the IRS has been tasked over the last year with distributing three rounds of stimulus checks and implementing a slew of last-minute tax code changes meant to ease the financial strain on individuals and businesses across the country.

"We got hit with a couple additional issues — we got hit with the pandemic, we got hit with staffing issues, and we've had difficulty hiring during this time," IRS Commissioner Charles Rettig said during a Senate Finance Committee Hearing on April 13. Federal tax returns are due on May 17 this year, about a month later than usual.

According to the National Taxpayer Advocate, Erin Collins, these setbacks have compounded, resulting in a backlog of around 29 million tax returns waiting to be manually processed, she wrote in a blog post published April 22.

Some of the backlog is expected: Many of those are paper returns, which generally take longer to process than electronic returns, and other returns have issues that require responses from taxpayers, including fraud triggers, as well as returns for businesses and other entities.

What's different this year, though, is that more than 8 million of the 29 million returns in the queue were suspended and awaiting manual review largely due to issues related to coronavirus tax relief, including stimulus checks and the earned income tax credit, Collins said.

Normally the IRS is able to get the vast majority of refunds to taxpayers within three weeks of accepting their return. With so many tax returns in line for manual review, millions of refunds may take longer to arrive.

Why tax returns are piling up

The IRS's Error Resolution System (ERS) is a computer program that reviews tax returns after they have been accepted by the IRS. The program checks for simple errors including math calculations, missing forms and schedules, and incorrect inputs on tax-preparation software. If a return is found to have errors, it is delivered to the ERS unit, where an employee must manually review it and determine next steps.

"For context, during a normal filing season when the ERS unit is fully operational, it does not suspend returns, as it is able to review and process them as they come in," Collins wrote. During the Senate hearing, Rettig said the ERS review process typically takes about three to five days. Right now it's taking about 10 to 14 days, on average, he said.

Manual review on 2020 returns is mainly being triggered in two instances, according to both Collins and Rettig.

• First, on returns where the taxpayer is claiming the Recovery Rebate Credit, but the amount reported on their return doesn't match IRS records.
• Second, on returns where the taxpayer is claiming the earned income tax credit (EITC) or additional child tax credit (ACTC) and elected to use their 2019 income instead of 2020 income. This was a "lookback" rule authorized by the December 2020 stimulus bill that the IRS didn't have time to program into their systems before the start of the 2021 tax-filing season.

Collins acknowledged the strain being placed on IRS staff and computer systems. She commended the agency's progress so far during a tax season that has been "challenging at best," but said it should be doing more to keep taxpayers in the loop about processing delays.

When a tax return is held up in this manner, Collins wrote, the IRS' "Where's my refund?" tool doesn't provide details about why, and whether the taxpayer can do anything to help. Instead, taxpayers try to get in touch by phone, which usually proves unfruitful. So far this season, the IRS has only been able to answer about 2% of calls to its income tax return help line.

During the Senate hearing, Rettig maintained that "the Internal Revenue Service is operating smoothly with respect to filing season." He said the first round of refunds distributed in mid-February went to many taxpayers with the greatest financial need, namely people who claim the EITC and ACTC.

IRS data from the week ending April 16 shows the agency has paid out about 8 million fewer refunds than it had at the same time last year. Tax deadline extensions are at least partially to blame, as is the later tax-season start date this year, but the backlog of returns requiring manual review certainly plays a role.

"There's a high degree of concern and dedication [from the IRS], and I get it — that doing everything we can didn't get someone their payment earlier, but we are doing everything we can in that space," Rettig said. "We are using every resource possible to get us there."