“This is the worst it's ever been. It’s just horrible,” said Douglas Hord, a local tax expert and founder of the My Tax Guy In Houston tax prep company.
“It can be months before their processing is completed,” Hord explained. “I’ve got clients who have 2019 refunds that haven’t been received yet, for whatever reason, so people who are finding their 2020 refunds are held up are in for a long ride of uncertainty.”
Thanks to the coronavirus pandemic, the Internal Revenue Service mercifully extended this year’s nationwide tax filing deadline from April 15 to May 17 earlier this year. Texan taxpayers got an extra month to file their returns when the IRS moved the Lone Star State’s filing deadline to Tuesday, June 15 on account of February’s deadly winter storm.
Hord warned that at this point, it’ll be more of a pain than usual for Texans who still haven’t filed their returns and want to ask for an extension ahead of Tuesday’s deadline on account of how the IRS electronic filing system didn’t get updated to factor-in Texas’ delayed filing date.
“That’s going to catch up a lot of people. They’re going to think ‘Oh, well, it’s 10 o’clock on Tuesday evening, I’ll just file my extension using TurboTax!’ [But] it has to be postmarked by Tuesday,” he explained, “not deposited with the mail, but the post office actually has to postmark it on Tuesday.”
Joel Flavin, a site manager at a Baker Ripley tax center for low-income Houstonians, agreed with Hord that the combination of the pandemic, the winter storm and multiple rounds of mid-tax season rule changes have made this year way bumpier than past filing seasons.
“We’ve had a lot of challenges,” Flavin said. “It seems like every year is a little bit challenging because the rules change and the software changes, and so those always create a little bit of a challenge. But this year has been unique in the variety of the challenges we’ve seen.”
Last year, Flavin said he doesn’t remember any of his clients coming in to complain about not getting their refund checks within the IRS’s typical three-week turnaround time. But this year was different: “We have seen a lot of individuals coming in and saying ‘Hey, listen, I filed my tax return two months ago, and I still don’t have a refund. What’s up with that?’ So I’m aware of the fact that they are slower this year than in years past,” Flavin said.
Hord said he’s heard the IRS is “somewhere between six and nine months behind on processing paper returns,” thanks to staffing issues due to underfunding over the past several years that were compounded by the coronavirus crisis, which caused federal tax offices across the country to shut their doors for months.
“It’s made it much worse,” Hord said. “The IRS didn’t even answer the phone for five months, because of course, like everyone else, they sent everybody home. And they were completely unprepared for an environment where everybody works from home.”
“We’re hearing from clients that they’ve sent in payments by check, and the checks go stale without having been processed,” Hord explained, “which is exciting, because then you get a letter from the IRS [saying] ‘Your payment check bounced!’ That’s fun.”
It’s not only the hard-copy, mailed-in returns that aren’t getting processed in a timely manner; Both Hord and Flavin said they submit the vast majority of their clients’ returns electronically, and some of those clients still haven’t received refunds weeks after filing.
When the Houston Press reached out to the IRS and asked to speak with a representative about everything that’s led to so many refund checks being delayed this year, a spokesman simply replied via email with links to the agency’s announcements about the winter storm-induced filing extension.
In a recent blog post, the IRS’s independent National Taxpayer Advocate Erin Collins admitted the IRS has been struggling to keep up this year. “Because of the pandemic, congressional directives, and reduced staffing, we understand the delays taxpayers have experienced this year have been largely unavoidable,” Collins wrote.
Flavin said the fact that Congress tasked the IRS with sending out all of the federal COVID stimulus checks could have added to the understaffed agency’s difficulty processing returns this tax season. “It is possible that some of the delays are because of the additional duties that they’re doing this year,” he said, “and they also had to rewrite rules.”
Hord and Flavin both mentioned how the most recent federal COVID relief package Congress passed in March adjusted how much of a person’s unemployment benefits were taxable, which may have made things even more difficult for the understaffed IRS and could have contributed to the months-long refund delays some folks are experiencing.
Previously, all unemployment benefits were considered taxable income for this tax season, but the March relief bill changed the equation to make the first $10,200 in unemployment benefits an individual received tax-free.
“It created a couple of problems,” Flavin said. “One is the software had to be upgraded in the middle of the tax season, [and] the customers that had already come in and had their return done and had unemployment, it was fully taxed.” Flavin said.
“The IRS was supposed to — or they told us they would — correct those tax returns on their own,” he said. But so far, he hasn’t heard from any of his clients about them receiving the extra money they’re owed due to the mid-tax season rule change.
“They were supposed to do that automatically, and then send the additional money out to the customers, but I have not heard anything about customers being satisfied that way,” Flavin said. “I don’t know, they may have been satisfied, and they just never came in to tell us. But I don’t know if the iRS actually corrected it.”
On the individual taxpayer’s side of the process, Flavin and Hord said several COVID-related factors made tax filing way trickier this year.
Not only was there the relatively late shift in how much unemployment benefits would be taxed, but folks also had to remember to report all of their stimulus payments from the government. “There’s so much to keep track of for people this year that they’ve not had to keep track of before. We’re starting to see that people who don’t correctly reconcile their COVID stimulus payments are having delays in processing their refunds,” Hord said. Somewhat surprisingly, he explained, “Most people don’t have any idea how much they got.”
Taxpayers also had to make sure to have last year’s tax documents handy on account of how December’s federal COVID relief legislation changed the rules to make the often-claimed Earned Income Tax Credit based on a person’s income in the previous tax year before the pandemic.
There's also the issue of taxpayers filing based on Texas' adjusted June 15 deadline who owe income tax in states other than Texas, which doesn't have a state income tax. While Hord said he wasn't aware of the policies of every state with its own income tax, "there's a good probability that many of the states are going to consider those state returns to be late" if they get filed after May 17.
When asked what he’d recommend that the IRS do to make things run more smoothly next filing season, Flavin said he honestly couldn’t think of anything from an operational standpoint, other than hiring more people if there was the funding to do so.
“I don’t have any criticism of the IRS because I understand that they are very busy,” he said. “Their staffing is probably not as great as it could be or needs to be, and they’ve pretty much done the job as I would expect them to do.”
Hord said he believes the IRS has been underfunded for years now, dating back to the '90s. He pointed out how the agency’s computer systems are still using ancient hardware right out of the '70s for the most part, and how he’s slowly seen the once bustling Houston-area offices dwindle to the point where he’s been greeted by more empty desks than smiling faces when he’s visited in recent years.
Throw a global pandemic into the mix and all the technical difficulties that presented, and it’s no wonder why the IRS is struggling to keep up this year.
“If you call them, they don’t have anybody available to answer the phone,” Hord said. “Calling them is not going to get you a clear answer anymore, so call your congressman and tell them the IRS needs to be fully funded.”
To any readers of the Press who still haven’t filed their taxes as of Monday morning and might be frantically running into their local tax prep office, Flavin stressed that “Anything that says ‘tax’ on it, they want to bring it to the site that prepares their return.”
“If you call them, they don’t have anybody available to answer the phone. Calling them is not going to get you a clear answer anymore, so call your congressman and tell them the IRS needs to be fully funded.” — Douglas Hord , founder of My Tax Guy
“If we don’t need it, we’ll tell them we don’t need it,” he said, which is much better than “the customer that says ‘Hey, I didn’t bring this form,’ and I’m like ‘Oh my God, can you run home and get it?!’”
Hord had one bit of advice for all the tax procrastinators out there Monday morning.
“Extend right now. Drop what you’re doing. Go to the IRS website, print form 4868. Put your information on it, put it in an envelope, and take it directly to the post office,” he said. “Do that before you have lunch.”