Updated Jan 22, 2022 - Economy

Tax season nightmare ahead for understaffed IRS

 Illustration of a hand reaching out of a pile of paper tax forms.

Illustration: Shoshana Gordon/Axios

The IRS will start accepting 2021 tax returns in less than a week, and the filing delays and administrative headaches to come might eclipse last year — which was “one of the worst filing seasons," according to an independent advocacy agency within the IRS.

Why it matters: For taxpayers, especially with complex or paper filings, this means headaches, delayed refunds, and mistakes.

  • “Things might be more challenging even than what we anticipate — and what we anticipate is very, very challenging,” a Treasury official told Axios, using the phrase "death spiral" to refer to one set of issues.

Driving the news: The agency in charge of raising the money the country needs — the IRS collects 95 cents of every dollar in federal revenue — will once again be hamstrung.

  • “Checks are getting sent in and not processed,” one revenue agent told Axios, asking for anonymity because they were not authorized to speak to media.

State of play: A report from the taxpayer advocate's office warns of refund delays. The IRS is “in crisis,” the group said.

  • The IRS budget declined by 20% since 2010, even as the number of taxpayers increased by 19%.

What happened: The pressures of COVID-19 pushed the already-underfunded agency over the edge. “We’re running out of steam,” the revenue agent said.

  • The IRS, which relies on some software built in the 1960s, is facing a big backlog of paper filings from last year, including 6.2 million unprocessed 1040 forms.
  • The IRS doesn’t have scanning technology, relying instead on humans to open the mail and manually enter information into its system.
  • Last year, the agency received 282 million phone calls and answered just 29 million of them.

Worth noting: Despite its limitations, during the pandemic the agency succeeded in getting multiple rounds of stimulus checks out, as well as monthly childcare tax credit payments to parents.

  • The vast majority of taxpayers got their refunds promptly.

What’s next: Treasury is hoping for new funding to come through, already making staffing moves in anticipation of getting as much as $80 billion from the Biden administration’s Build Back Better legislation, the Treasury official said.

Yes, but: BBB's chances are fading.

The bottom line: The bulk of the issues with tax filing season involve paper filings. If you can file electronically using direct deposit, do that. Oh, and be careful: Mistakes jam up the process.

Editor's note: This story originally published on Jan. 20.

Go deeper