If you waited several months to receive your tax refund last year, you aren’t alone. In November of 2020, the IRS still had millions of tax returns left to process, meaning millions of taxpayers didn’t get their 2020 tax refunds until almost the end of 2021.
We know your tax refund can be one of the biggest checks you receive during the year, and you rely on getting that money back in a timely fashion.
So, what happened last year? And can this situation be avoided when it comes to getting your 2021 tax refund?
Let’s go over the basics of what happened in 2020. While we’re at it, we’ll also give you some tips on how to make sure you receive your tax refund as quickly as possible during the 2021 tax season.
Why did some 2020 tax refunds take so long?
The short answer: tax changes caused by the pandemic.
The long answer: It’s no secret that many businesses across the country are dealing with staff shortages and budget cuts brought about by the coronavirus pandemic. The Internal Revenue Service is no exception. The economic toll of COVID-19 forced the government to make many tax changes over the past two years, and like the rest of us, the IRS has been struggling to keep up.
The American Rescue Plan signed into law in March 2021 was a huge part of why refunds took so long last year. This relief legislation applied some retroactive tax changes — after about half of 2020’s tax returns had already been filed. Many people who filed early were suddenly owed a refund, forcing the IRS to go back and reconcile millions of tax returns that had already been processed.
This made it more difficult to process everything else and left the IRS with a backlog of tax returns to sift through.
Which brings us to another reason why refunds have been taking so long — manual verification of tax discrepancies related to relief legislation.
To better understand this, let’s look at a couple of different scenarios:
Anne was supposed to receive two stimulus checks in 2020, but she only remembered receiving the first one. When she filed her 2020 tax return, she claimed her missing second stimulus payment using the Recovery Rebate Credit.
According to the IRS’s records, Anne should have received the full amount of both stimulus payments in 2020. This means she likely claimed too much with her Recovery Rebate Credit. Because the amount Anne claimed does not match what the IRS calculated she was eligible for, the IRS will have to manually review Anne’s return to determine which amount is correct.
If you claimed a Recovery Rebate Credit in 2020 and the amount didn’t match what the IRS calculated you could claim, your return required a manual review.
Grant lost his job in April 2020 and was unemployed the rest of that year. When filing his 2020 tax return, he took advantage of the IRS “lookback” rule stating he could use his 2019 earned income to determine his Earned Income Tax Credit (EITC). Grant did this because his 2020 earned income was much lower and using his 2019 earned income would give him a larger tax credit.
The IRS manually reviewed 2020 returns where taxpayers used the lookback rule to calculate their Earned Income Tax Credit or Additional Child Tax Credit (ACTC). Since Grant claimed the EITC using his 2019 income, his return took longer to process due to manual review.
If you used the lookback rule to claim the EITC or ACTC on your 2020 return, your return also required a manual review by the IRS to ensure accuracy.
How can I get my 2021 tax refund as soon as possible?
Once you file your tax return, it’s up to the IRS to process your return and send you your refund in a timely manner. However, there are some steps you can take to ensure a smooth process and increase the possibility of receiving your refund on time.
1. File your 2021 taxes early
This is the biggest step you can take to ensure you receive your tax refund on time. Once the IRS opens for tax season, returns are processed and reviewed in the order they are received. If you want your tax refund as early as possible, the best thing you can do is file as early as possible! Just make sure you have all the necessary tax documents you need on hand.
2. E-file your tax return
We get it, not everyone feels tax-savvy enough to e-file their taxes online. Thankfully, online tax software is only getting better. E-filing can guide you step by step through the tax filing process and even alert you to possible mistakes or typos you might have made.
Paper returns take longer to process, plus they increase the chance of human mistakes (such as math errors), and correcting these kinds of mistakes only makes the process take longer.
3. Accuracy is key
We say this all the time but keeping your tax records organized is the best way to make sure you are filing an accurate tax return. And accurate tax returns are what the IRS loves to see!
If you are claiming any tax credits for 2021, make sure you have the appropriate documents on hand to help you determine the correct amounts to claim. In 2021, for example, the IRS is sending Letter 6419 to advance Child Tax Credit recipients so they know what remaining credit amount they need to claim on their tax return.
If your numbers don’t match up with the IRS’s calculations, that is going to trigger a manual review and most likely a significant delay in receiving your tax refund.
Can I track the status of my tax refund?
The IRS provides a useful refund tracker on their website. If your tax return has been accepted, you can track the status of your refund using their Where’s My Refund? tool.
Unfortunately, if your tax return is stuck in processing, the refund tracker will only tell you that the IRS has received your return. The best thing to do is wait for your return to be accepted by the IRS, and then use the Where’s My Refund? tool to track its status.
Here’s to fast refunds in 2021
We know waiting a long time for your tax refund is incredibly frustrating — not to mention stressful. But by following these simple tips, you’re setting yourself up to get your hands on your 2021 tax refund as soon as possible this year.