The IRS is advising Americans to file their taxes electronically this year because the agency is still dealing with nearly 7 million unprocessed paper returns from last year. The IRS announced last week it is delaying the start of the 2021 tax season to Feb. 12 to help prevent another buildup of uncompleted tax filings.
The IRS received an estimated 16 million paper returns last year; as of Dec. 25, the IRS claimed it still had about 6.9 million individuals returns in the “processing pipeline” — or about 40%. The agency expects nine out of 10 taxpayers to receive their refund within 21 days of filing electronically.
The IRS opened Free File, a free online tax preparation software, for taxpayers to prepare and file their income tax returns. Free File is available to Americans who earned $72,000 or less in 2020.
The delay means that people who claim Earned Income Tax Credit or Additional Child Tax Credit won’t receive their refunds until the beginning of March, so long as they file electronically with direct deposits and there are no issues with their tax returns, the IRS said.
While the delay is potentially inconvenient for Americans still reeling financially from the crisis, the IRS is paying interest on the overdue refunds. Taxpayers with a refund issue date between April 15 and June 30 earn an annual interest rate of 5%, while refunds issued between July 1 and Sept. 30 earn an annual interest rate of 3%, the IRS said.
In March, the Treasury Department extended the tax filing deadline from April 15 to July 15 as a result of the virus-induced pandemic, which dragged the nation’s economy into the worst downturn since the Great Depression. During that time, the agency continued to process electronic returns and issued refunds via direct deposits.
But when the IRS directed most of its employees to work remotely in mid-March, bringing a host of the agency’s typical functions to a grinding halt, it created a tremendous backlog in paper returns. At one point, the overflow was so great that the IRS had to rent tractor-trailers and separate storage space to store the documents until workers could return and start sorting through them, Nina Oldson, the director of the Center for Taxpayer Rights, told NPR.
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