Tax Season 2022: The Good, the Bad & the Ugly
It's open season! The IRS announced tax-return filing season will kick off January 24th. It may not be pretty; let's chat about it, shall we?
As Communications Director for EGP, PLLC, I have an aerial view of the relationship and the process between clients, partners and associates.
I dubbed our professionals, "Financial First Responders". CPAs are in the trenches digesting, translating and delivering IRS updates the minute they drop from Washington. I have personally witnessed the intense flood of changes they have been reporting nonstop since the pandemic began. My next accounting PR move will be to produce t-shirts with the slogan, "Have you Hugged a CPA today?"
A host of issues could slow things down and make for more complicated tax-return preparation. Among them: The Internal Revenue Service still hasn't worked through all of the returns from last year, Congress threw in some new wrinkles and the pandemic continues to cause problems.
The National Association of Tax Professionals is warning of the "most grueling year yet" for preparers and predicts that many taxpayers might need extra help. Erin Collins, head of the federal watchdog Taxpayer Advocate Service, said she was "deeply concerned about the upcoming filing season," for various reasons. CPAs and accounting professionals are buckling their seatbelts.
How is the pandemic still causing delays you ask?
In a statement, IRS Commissioner Chuck Rettig said the pandemic "continues to create challenges." It doesn't help that call volumes to the IRS were and continue to be heavy. Last year, the IRS received more than 145 million phone calls from January 1 to May 17, more than four times the normal amount. Our CPA professionals are reaching thresholds up to 3 hours on hold to connect with an IRS rep. Yep, I said 3 hours and that doesn't mean we always actually connect with someone during these hold times. It's not uncommon for the line just to go dead!
"In many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs," Rettig said.
The IRS is catching up and recently said that all paper and electronic individual refund returns for 2020 received prior to April 2021 were processed if a return had no errors and didn't require further review. However, plenty of returns did have errors, did require additional review, weren't claiming refunds or weren't filed that early. The IRS had issues with millions of e-filed returns due to various discrepancies and errors, according to the taxpayer advocate's report. Those included 11 million math error notices that meant returns had to be manually reviewed and therefore experienced delays.
As of December 23, 2021, the IRS still had 6 million unprocessed individual returns. The agency said it has had to correct "significantly more" taxpayer errors than usual.
Also, the IRS hasn't finished correcting 2020 returns and processing refunds for people who paid taxes on unemployment benefits before Congress made such compensation temporarily tax-free, below certain income limits.
The silver lining, if there is one, is that taxpayers generally don't need to wait for their 2020 return to be processed to file their 2021 return.
And there a few added complexities…
"People should make sure they report the correct amount on their tax return to avoid delays and those individuals who received an economic impact payment or the advance child tax credit last year should be extra-careful.", Rettig said.
Advance Child Tax Credit payments
Congress last year increased the amount of this credit and, in a twist, paid half of the credit in advance. Now, households that received advance payments need to compare what they received in 2021 with what they can properly claim on their 2021 return.
The IRS has sent out Letter 6419, containing key information such as the amounts paid and number of qualifying children. Taxpayers also may check key information using the CTC Update Portal at irs.gov.
Eligible taxpayers who received advance payments should file a 2021 return to obtain the second half of the credit. People who didn't receive advance payments can claim the full credit by filing a return, including those who don't normally need to file. But taxpayers who got more than they were entitled to receive might need to repay the difference.
Economic Impact Payments
The government approved three rounds of pandemic stimulus payments — two in 2020 and the third last year. The IRS in late January will begin issuing Letter 6475 to people who received the third payment. Eligible individuals who didn't receive payment can still claim it, but they will need to file a return to do so.
COVID-19
And let's not forget that COVID-19 still lurks about causing pandemonium! We are doing everything we can to stay safe and in operation so we can serve you well, but inevitably, there will be delays due the operational challenges of managing the pandemic, delays beyond our control.
How can you avoid delays?
Start gathering your tax information now! Yeessss! Your CPA will be super-bottlenecked come April. Humans never stop to consider the very long line of returns being processed by accounting professionals. The longer you wait, the longer the line.
File your 2021 tax return electronically and choose direct deposit of any refunds to avoid delays in processing and receiving your refunds. Paper filing is a much slower process. The IRS anticipates that most taxpayers who file electronically, choose direct deposit and have no issues with their tax return will receive their refund within 21 days.
Do not, however, file until you are sure you have all information needed to file a complete and accurate return. Filing a return with less than all the required information can lead to significant and unnecessary delays. Sometimes, applying for an automatic extension of time to file is the better way, and helps your CPA have the time to devote to your return that you deserve!
Patience will keep you in the long game of Life!
Patience may be a virtue, but in today's world where we can access information within seconds, patience is a tool for sanity. Trust me when I say your CPA professional is reminding themselves of this virtue on a daily basis since the pandemic hit. Be patient, we are working hard for you and other clients, and we're always here to assist.
Thank you for your business and the trust you place in our firm.
