Tax season begins on Jan. 24 and filers should expect delays as the IRS combats a backlog and limited staffing, Treasury officials say.
The IRS still had not processed 6 million individual returns already submitted by taxpayers as of Dec. 23, according to the agency, and the situation may get worse as the new tax season kicks off.
“In many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs,” IRS Commissioner Chuck Rettig said in a statement.
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There were fewer than 15,000 workers to handle the 240 million incoming calls during the first half of 2021, which is one person for every 16,000 calls.
And only 7% of taxpayers reached an agent during last year’s filing season, according to Taxpayer Advocate Service’s mid-year report.
However, you may avoid delays by filing electronically with direct deposit, Rettig said, and watch for errors — especially for stimulus and advance child tax credit payments — which may require a manual review.
Here’s what else to know before filing your return.
Advance child tax credit payments
The American Rescue Plan boosted the child tax credit to $3,000 for families with kids ages 17 and under for 2021, with an extra $600 for children under 6.
While millions of Americans have received advanced credits, filers who earned more than expected may need to pay some of it back, experts say.
To qualify for the full credit, single filers need a modified adjusted gross income of less than $75,000 and married couples filing together must earn under $150,000.
You should watch for Letter 6419 from the IRS to reconcile payments, said certified financial planner Larry Harris, director of tax services at Parsec Financial in Asheville, North Carolina.
You may also tally advance credits by comparing bank statements to IRS records in the Child Tax Credit Update Portal.
Harris suggests starting the filing process early as many taxpayers had 2020 refund delays related to stimulus payments.
“Get your return filed as quickly as possible,” he said. “That will at least get the wheels turning on what could possibly be another slow year for IRS processing.”
Americans started getting the third round of stimulus payments of up to $1,400 in March 2021 as part of the $1.9 trillion American Rescue Plan.
If you received a check, keep your eyes on the mail for Letter 6475, covering what the IRS sent in 2021 and what’s still due to other recipients.
And if you’re owed a stimulus payment, there’s still time to claim it by filing your 2021 tax return, according to the IRS.
Health insurance subsidies
Congress also increased health insurance premium subsidies in March, making coverage more affordable for millions of Americans.
While the exchange has temporarily capped premiums at 8.5% of household income, you may have to repay some of the benefits if earnings exceed the thresholds for 2021.
“It can really be a very unpleasant and stressful situation for those folks that have to pay money back,” said Harris.
However, you can start working with a tax professional early to project 2021 income now to estimate liability and set aside money for a future bill, he suggested.