Has Your Tax Refund Been Held Up? You Could Have Your Money by Year-End

The IRS has some good news for filers who are awaiting tax refunds.

There's a reason tax filers are frequently told to file their returns electronically rather than on paper. The IRS takes a lot longer to process paper returns than electronic ones, and if you're owed money, that could mean waiting longer than necessary to get the cash you're entitled to.

Meanwhile, the IRS has, in recent years, fallen behind on processing paper returns. As such, many filers are waiting a long time for tax refunds.

But they may not have to wait much longer. The IRS just announced that it expects to dig out of its current backlog by the end of 2022. That means many filers could see their refunds hit their bank accounts sooner than expected.

Why the tax refund holdup?

The IRS is an agency that's been sorely understaffed for years. To some extent, that's worked to the benefit of taxpayers. Since the agency doesn't have the funding to hire enough staff, it's had to cut back on its tax auditing practices.

On the flipside, in recent years, it's gotten harder to speak to an IRS agent on the phone to address tax questions. It's also been taking the agency longer to manually process documents it receives in the mail. That extends to paper tax returns, many of which have been sitting unprocessed from previous tax seasons.

Compounding the problem was the closure of most IRS field offices in 2020, when the COVID-19 outbreak first erupted. That wasn't an unreasonable thing for the IRS to do. If anything, it fell in line with the way many companies shifted their employees over to remote work that year. But it did result in a scenario where mailed-in tax returns were sitting unopened -- for months on end.

Making progress

In an effort to work through its backlog quickly, the IRS has plans to hire 10,000 new employees, 5,000 of which are expected to be onboarded in the coming months. The agency estimates it will manage to clear its backlog by the end of the current year, barring unforeseen circumstances.

Meanwhile, President Biden recently signed off on $12.6 billion for the agency's 2022 budget. That represents a 6% uptick from 2021 and should give the agency more hiring flexibility.

How to avoid tax refund delays

If the idea of a delayed tax refund doesn't sit well with you, then one of the most important things you can do is file your taxes electronically rather than on paper. Also, be sure to check your return for errors -- no matter how you submit it.

Most tax software programs are good at spotting math errors, and the IRS will usually attempt to correct those anyway. But other errors, like an incorrect Social Security number, could result in a rejected tax return -- and a major refund delay.

Further, if you receive correspondence from the IRS in the mail, aim to address it as soon as possible, especially if it impacts your refund. The sooner you put in a response, the sooner someone at the IRS can process it -- and get you the money you're entitled to.