U.S. taxpayers expecting tax refunds this year are very concerned about the state of the Internal Revenue Service (IRS), which is facing record-low staffing issues.
“The IRS is more backlogged than I’ve ever seen. And their computer systems are antiquated. And they just have had a lot of people leave their employment.” Robert Seltzer, Seltzer Business Management president and CPA, told Yahoo Finance Live (video above). “And they just have not had, you know, people replaced. So it’s sort of the perfect storm for the IRS — underfunding, bad systems, you name it. It’s the worst — they’re in the worst position they’ve ever been in.”
A poll from YouGov/ Forbes Advisor found that approximately 50% of U.S. taxpayers expect their refund to be lower this year after having received government aid during the pandemic. The survey, which consisted of 1,200 people, said that low-earning Americans felt especially pessimistic about the current tax season, despite IRS reassurances. At least 42% of Americans with household incomes under $50,000 don’t expect a refund and are unsure if they will get one.
Tax refund delays will be “horrible,” said Seltzer.
A man walks past an advertisement for H&R Block in the Brooklyn borough of New York City. (Credit: Drew Angerer,Getty Images)
Child Tax Credit recipients could receive smaller refunds
Major changes to the tax code last year could mean smaller than anticipated refunds this year, especially for the 35 million households that received the advanced Child Tax Credit (CTC).
The American Rescue Plan, which passed in March 2021, increased the CTC amount from $2,000 per child to $3,000 per child ages 6-17 and $3,000 for those under 6. The measure also allowed half of the amount to be distributed in advance each month from July to December last year. The remaining half would be delivered through a refund after families filed their federal tax return.
If you received this credit, you may get a smaller tax refund this year because you already received the first half of the total benefit in 2021. Under normal circumstances, eligible families would receive at least $2,000 per child under the age of 17 through their refund. Now, they could get under $1,800.
The survey found that 54% CTC recipients said they expected a smaller refund amount because they had received the advance last year. Meanwhile, at least 27% weren’t sure if the monthly payments would impact their refund.
According to Seltzer, these concerns are justified.
“If they got those (Child Tax Credit) payments throughout the year then their refund would be reduced,” said Seltzer. “Some people tried to cancel those payments and found it next to impossible to do so. But that is also consistent with the worst state of affairs (of the IRS) in my 30-plus years in the profession.”
An overwhelming amount of households that received the advanced Child Tax Credit payments last year expect a lower tax refund year. (Credit: Forbes Advisor)
How to avoid refund delays
According to Seltzer, the best way to avoid delays is to file electronically. Filing a paper return “will delay your refund for months. Not weeks, but months,” he said. “I filed an amended return electronically in July, it is a simple return, with a refund of less than a thousand dollars. We still don’t have it.”
The IRS also recommends registering for a direct deposit.
Taxpayers can file electronically for free through the IRS or through a private tax preparer’s website. Before filing, make sure to check your return for accuracy to avoid a manual review from the IRS.
Filing your tax returns electronically can help you avoid delays, according to the IRS. (Credit: Getty Creative)
Parents or guardians who received the advanced CTC payments should double check their returns as the agency warned that the Letter 6419, which details how much in advanced payments taxpayers received, could contain some errors.
To file correctly, the IRS recommends reviewing your records on the IRS online account, as this will contain the most up-to-date information on your CTC that should go on your tax return.
“If you’re off — even by a few dollars — the concern is your return is going to get in a holding pattern,” Greg Kling, an associate professor at USC Leventhal School of Accounting, previously told Yahoo Finance. “That’s obviously not a good thing.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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