IRS Mission-critical Updates on Tax Return Backlog

The IRS has updated its mission-critical function stats as of June 3, 2022:

Mail is being opened within normal timeframes. All paper and electronic individual refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review.

As of May 20, the IRS inventory was 9.8 million unprocessed individual returns including those received before 2022 and new tax year 2021 returns. Of these, 2 million returns require error correction or special handling and 7.8 million are paper returns in the review pile. Special handling cases are taking 21-120 days. The IRS will send explanation letters for any corrections on the Recovery Rebate Credit, Child Tax Credit, Earned Income Tax Credit or Additional Child Tax Credit. Tax Season Refund Frequently Asked Questions.

How Long Taxpayer May Have to Wait

The IRS has processed all error-free returns received prior to October 2021 and they are manually reviewing the rest. They reroute returns and correspondence to sites with more available staff. Again, errors in the Recovery Rebate Credit and Child Tax Credit will cause delay or if missing information or flagged for identity theft or fraud. The resolution of these issues is taking 90-120 days.

What Taxpayer Should Do 

Taxpayers can check Where's my refund? or their online account. No further action is needed if an electronic return was acknowledged. For paper returns, if Where’s my refund? status shows received, processing or reviewing, the return may be under review. Do not file a second tax return.

Status of Processing Form 1040-X, Amended Individual Tax Return

As of May 21, there were 2.1 million unprocessed Forms 1040-X with a backlog of 20+ weeks. Taxpayers should continue to check Where's My Amended Return? for the most up to date processing status available.

Status of Unemployment Compensation Exclusion Corrections 

The IRS is still reviewing tax year 2020 returns and processing corrections for taxpayers who paid taxes on unemployment compensation, to exclude the compensation from income if eligible. More than 11.9 million refunds totaling $14.6 billion have been issued. Some taxpayers will receive refunds, while others will have the overpayment applied to taxes due or other debts. Affected taxpayers should receive a corrections letter, generally within 30 days from when the corrections were completed. See the 2020 Unemployment Compensation Exclusion FAQs.

Status of Processing Form 941, Employer’s Quarterly Federal Tax Return

As of May 25, inventory was at 3.7 million unprocessed Forms 941 and about 241,000 unprocessed Forms 941X. Some of the 941Xs cannot be processed until the related 941s go through. While not all these returns involve a COVID credit, trained COVID-credit staff in Cincinnati and Ogden are working them.

IRS Operations During COVID-19: Mission-critical functions continue | Internal Revenue Service

Comments

[Anthony Brown]

The ERTC (Employee Retention Tax Credits) related to 941's (and 941X) is a great thing, but not if the IRS processes them in a year or two! The tax credit is to help companies stay in business, but it won't if the refund is mailed to a closed business or the tax offset is available when they no longer in business and there is no payroll.

PEOs (Professional Employer Organizations) are sometimes, maybe typically, an umbrella organization or parent EIN for multiple small companies (separate EINs). The PEOs are amending their 941s and in some cases multiple times because of the multiple companies that roll up under the PEOs EIN. The IRS must be setting these aside as we are not seeing PEO's 941s processed from a year ago!

How do we communicate the importance of ERTCs to the IRS? Do you know they are paid, albeit retroactively, for government shut down vacations and they were paid during the government's extended Covid vacation?

Small businesses use PEOs because the cost of governmental compliance and lack of affordable health insurance. The IRS has to help the small businesses stay in business. These companies kept employees off unemployment (and the extended unemployment vacation).

All we get is "oh we have 4 million 941s and 941Xs unprocessed, have a good day!"