The IRS still needs to process more than 21 million paper tax returns, delaying refunds for many Americans as the agency struggles to work through the backlog, a government watchdog said this week.
National Taxpayer Advocate Erin Collins said in a recent report that the agency still needs to process about 21.3 million paper returns as of May 31 – a 7% increase from this same time last year, when there were 20 million unprocessed paper returns.
"Unfortunately, at this point the backlog is still crushing the IRS, its employees and, most importantly, taxpayers," Collins wrote in the report. "These processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many."
Although more than 90% of taxpayers submitted their returns electronically last year at the request of the IRS, some 17 million sent paper filings, exacerbating the pile-up of returns. It is disproportionately older Americans who file their returns via mail.
As a result, some taxpayers who submitted paper-filed returns have had to wait an unusually long time to receive their refunds, with wait times routinely exceeding six months. Some Americans have waited 10 months or more, according to the report.
In a statement, the IRS disputed the tax return figures presented by the national taxpayer advocate, suggesting the actual backlog is closer to 19 million – down slightly from last year's levels.
"The IRS is committed to having healthy inventories by the end of this year and continues to make strong progress handling unprocessed tax returns," Jodie Reynolds, a spokesperson with the IRS, said in a statement. "The inventory numbers presented in the National Taxpayer Advocate report are neither the most accurate nor most recent figures."
The IRS announced earlier this week that it is on the verge of processing all error-free tax returns that it received in 2021. However, the agency has about twice as many 2022 tax returns as normal that need to be processed, a Treasury Department official told reporters during a call on Tuesday, the result of directing employees' attention to the more-pressing backlog of 2021 returns.
Those error-free, paper returns will likely be processed by the end of this year, the person said.
The heap of unprocessed returns stemmed from pandemic-related disruptions, including a worker shortage, the Herculean task of administering millions of stimulus checks and adapting to other tax changes in the different COVID-19 relief packages, like boosted child tax credit payments.
IRS Commissioner Chuck Rettig has previously noted that the agency is grossly understaffed. The IRS planned a massive hiring spree during the 2022 tax season in order to wade through unprocessed returns from previous years, but hired just 1,500 new employees. It plans to onboard about 10,000 workers in the next year.
On top of that, workers who process original returns have recorded about a half million hours of overtime this year, while some 2,000 employees shifted from other parts of the agency to focus on processing returns.
The IRS has laid out a goal to reach "healthy" levels of inventory by the end of 2022.