IRS Experiencing Tremendous Delays Processing Tax Notices, Income Tax Returns

May 14, 2021 | COVID-19, GTM Blog, Household Payroll & Taxes

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The pandemic, staffing shortages, and tax law changes have all helped create IRS delays and a massive backlog in resolving tax notices as well as processing income tax returns and estimated tax payments. What can household employers expect?

Receiving a tax notice from the IRS can be frustrating and worrisome. Compounding the aggravation this year is the significant delays plaguing the tax agency in resolving any issues.

The pandemic and staffing shortages at the IRS have created a huge buildup of tax notices.

In addition, recent tax changes and resource restrictions have created a backlog of tens of millions of income tax returns on top of those tax notices. Here’s how we got to where we are now.

A backlog to start the year

The IRS was already behind as a new report from the Treasury Inspector General for Tax Administration revealed that 8.3 million individual tax returns and transactions remained to be processed as of the end of 2020. That represents more than a 1,200 percent increase in the number of paper-filed tax returns that have been carried over from the prior year compared to a normal year. That backlog required resources that otherwise would have gone towards the 2021 tax season.

The COVID-19 pandemic also forced IRS employees into working remotely. While workers were out of the office, AccountingToday reports that “millions of pieces of unopened mail piled up in trailers parked outside IRS facilities, and the IRS has been trying ever since then to catch up with all the new mail that’s been pouring into its offices.”

Not only were responses to notices accumulating without resolutions, in March, the IRS also had more than 4,400 unfilled submission processing positions.

Pandemic relief legislation caused complications

The IRS was also responsible for sending out second and third rounds of Economic Impact Payments to eligible families and individuals. The expansions of the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) as well as new tax credits like the Recovery Rebate Credit have stretched IRS resources thin.

The Taxpayer Advocate Service blames the late passage of the Consolidated Appropriations Act that was signed into law on December 27, 2020 for causing some issues as it allowed taxpayers to use their 2019 income to calculate their EITC and ACTC.

Due to the late passage of the law, the IRS was unable to timely adjust its forms and computer systems before the start of the filing season to allow for systemic processing of returns where taxpayers elected to use 2019 income. Thus, the IRS had to create a manual process instead. Any corrections to the RRC [recovery rebate credit] or verification of the 2019 lookback election is being manually processed by IRS’s Error Resolution System (ERS) unit, and the IRS is placing the associated return in “suspense” until an IRS employee can review it to verify the 2019 income or the prior EIP. Essentially, the return is in a queue waiting to be reviewed and processed, and during this time, it is not evident on IRS systems why the return is being held.

Estimated quarterly payments delayed

According to AccountingToday, the IRS systems were “unable to process many of the quarterly payments that needed to be sent by April 15.”

Household employers often use Form 1040-ES to make estimated tax payments each quarter to help avoid underpayment penalties when they file their personal tax returns. So even though you or your payroll provider submitted your estimated tax payment, processing may have been delayed by the IRS.

The IRS now says “the issue has been resolved, and pending payments are being processed. The taxpayer’s account will be credited with the original requested payment date(s). Taxpayers should not re-submit these payments.” If you re-submitted an estimated tax payment due to the delay in processing, you may cancel it by calling (888) 353-4537.

Calls going unanswered

AccountingToday is also reporting that not only are IRS “computer systems being overwhelmed, but its call centers are as well. That’s affecting the level of service to the point where the majority of calls are going unanswered.”

“There have been days where if you calculated by looking at the number of calls that were answered and divide it by the number of calls that came in, the level of service was two to three percent,” said Nina Olson, executive director of the Center for Taxpayer Rights and the former National Taxpayer Advocate.

According to the Treasury report, of the 46.3 million phone calls to IRS assistance lines, just 4.4 million — or less than ten percent — have been answered by a live person. If you did get to speak to a human, your average wait on hold was 18 minutes.

Getting back to normal?

The pandemic is easing so the IRS could be getting back up to speed soon. The agency says it is now opening mail within “normal timeframes” and that the backlog will likely improve later this summer.

While the IRS process responses in the order they received them, they will continue to send notices even though you – or your payroll provider or accountant acting on your behalf – have been in contact with them to resolve any issues.

In the meantime, it is best to have patience.

GTM Payroll Services can help

An advantage of going with a comprehensive, full-service household payroll service is the high level of customer care provided. Received a tax notice from the IRS or your state related to your nanny taxes? GTM will take care of it for you. We’ll be the ones on hold with the agency and resolving your issue as quickly as we can. Want to learn more about our client service? Call (800) 929-9213 and get a complimentary, no-obligation consultation with a household employment expert. We will answer your questions about household employment and talk about how we support our clients. Or schedule time with us at your convenience.

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