If you’re experiencing a delay in receiving your 2020 tax refund, you’re not the only one. While the normal processing time for an e-filed tax return is around 21 days (with many people seeing theirs sooner), right now some taxpayers are experiencing significant delays in receiving their refunds. There are many factors contributing to the delays — here are a few of them.
Pandemic-Related Closures Created a Backlog of Returns
One of the reasons for the delay is the backlog of 2019 paper tax returns that the IRS was unable to get through after closing its offices for part of last year due to the pandemic. Even though IRS offices are open again, sorting through that backlog will take some time.
Add to that a high volume of 2020 returns being flagged for manual processing due to issues surrounding recent tax changes and federal Economic Impact Payment (EIP) stimulus checks, plus limited resources and technology issues, and you can begin to see why the IRS is struggling to get refunds out within their normal time frame.
EITC and ACTC “Lookback Rule”
The Consolidated Appropriations Act 2021, which was signed into law in December 2020, included something called a “lookback rule” for the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). The lookback rule allows taxpayers to use their 2019 income (rather than their 2020 income) to calculate their EITC or ACTC on their 2020 tax return.
Because the law was passed so late in the year, the IRS wasn’t able to adjust its forms and computer systems before tax filing season began to allow for the systemic processing of returns for taxpayers using 2019 income. Instead, they created a manual process for these returns. This means that, for any taxpayers who used their 2019 income to calculate their EITC or ACTC, their returns have to be processed manually, adding to the processing time and the backlog of tax returns at the IRS.
Recovery Rebate Credit
Also contributing to the delay are issues related to the Recovery Rebate Credit (RRC). When filling out your taxes this year, you may have noticed this new tax credit adjustment on your Form 1040 (or if your CPA took care of your taxes for you, they may have mentioned it). This credit allows people to adjust their 2020 stimulus payments if: 1) they never received them, or 2) they didn’t receive the full amount due to them. In some cases, taxpayers have filled out that line incorrectly, claiming the wrong amount and causing their return to be flagged for manual review by the IRS.
Stimulus Checks and “Plus-Up” Payments
We mentioned earlier that federal EIP checks were one of the reasons for the IRS’ delay in processing tax returns. This is partly due to the time and resources it takes for them to send out those checks. Another factor is something called “plus-up” payments. These payments affect people who:
- Already received their third EIP, based on their 2019 tax return
- May be eligible for a larger payment based on their 2020 tax return
Once your 2020 return is processed, you will automatically receive a plus-up payment if you are eligible. The IRS will be making periodic plus-up payments throughout the year to those who are eligible until all of the payments have been sent.
You may be thinking, “ok, but none of these things apply to me — why is my refund still delayed?” Remember that even if none of these factors apply to you directly, the backlog the IRS is experiencing because of them is affecting their overall processing time, meaning you still may have a longer wait than in a typical year. In addition, this is not a complete list of reasons why your refund may be delayed — there could be another reason not mentioned here.
If you are one of the millions of Americans waiting for your 2020 tax refund, you can keep an eye on its progress by using the “Where’s My Refund?” tool on the IRS website. And for Minnesota state taxes, you can check the status of your return here.
Even without delays, filing your taxes can be a confusing, frustrating, and stressful experience. If that’s true for you, Wood CPA can help. We offer tax preparation services for both federal and state taxes. Contact us today to learn more about how we can make tax season less stressful for you.