As tax season kicks off in 2025, millions of Americans are once again facing delays in receiving their refunds. According to a recent report from the National Taxpayer Advocate, an independent watchdog within the IRS, many taxpayers are still grappling with long processing times and unresolved issues, despite increased funding aimed at modernizing the agency.
Why Are Refund Delays Happening?
The report highlights several persistent challenges, many of which were exacerbated during the COVID-19 pandemic. While the IRS has made strides in addressing some problems, bottlenecks remain in key areas:
- Paper Returns: The IRS processes over 10 million paper tax returns annually, which remains a significant hurdle. Additionally, the agency handles around 75 million other paper forms, adding to the backlog. The report refers to paper returns as the IRS’s “kryptonite.” While the IRS has made progress in processing paper returns, it’s still not up to snuff. Processing paper returns can still take months for the IRS to complete.
- E-Filing Issues: Many people who e-file also face delays if their 1040s are rejected, an issue that impacted 18 million taxpayers in fiscal year 2024, or 12% of returns. These rejections can happen for issues like a PIN that doesn’t match the prior year’s return or an adjusted gross income number that doesn’t align with prior-year records. “[M]ost rejected returns are valid, requiring taxpayers to jump through additional hoops to resubmit their returns electronically or submit the returns on paper,” the report noted. Delays in processing both paper-filed and e-filed returns translate directly into refund delays.
- Identity Theft Cases: Taxpayers who are victims of identity theft often face lengthy delays. About half a million taxpayers are still trying to get their issues resolved, and it takes the IRS about 22 months on average to fix these cases and send refunds. This delay is not only stressful for taxpayers waiting for their refunds but also costly to the federal government, which must pay interest on overpayments it doesn’t refund in a timely manner.
- Employee Retention Credit (ERC): Some businesses are facing delays due to claims related to the Employee Retention Credit, a pandemic-era tax benefit designed to help businesses stay afloat. The IRS has flagged the ERC as vulnerable to fraud, leading to stringent review processes. As of October 26, 2024, the IRS was still sitting on a backlog of about 1.2 million claims. While the IRS aims to minimize the payment of ineligible claims, these delays can be devastating for businesses relying on ERC refunds to remain operational.
The Role of New Funding
The Inflation Reduction Act allocated nearly $80 billion to the IRS, primarily to enhance enforcement and technology. While the funding has allowed the IRS to hire more staff and improve customer support, approximately 60% of this budget is earmarked for enforcement activities, such as auditing wealthy individuals and businesses.
Taxpayer Advocate Erin M. Collins has voiced concerns about the imbalance, suggesting that a greater portion of the funding should be allocated to improving taxpayer services. “Delays, frustration, and unnecessary costs” continue to plague many taxpayers, Collins wrote, emphasizing the need for a more service-oriented approach.
IRS’s Response to Criticism
IRS Commissioner Danny Werfel acknowledged the progress made in recent years but admitted that much work remains. “It’s vital that the IRS continue this momentum to better serve taxpayers and the nation,” Werfel stated. The IRS has improved in areas such as electronic filing and direct deposit processing, but ongoing issues highlight the need for sustained investment and modernization.
How to Avoid Refund Delays
If you’re filing taxes this season, here are some tips to minimize the risk of delays:
- File Electronically: Electronic filing is faster and less prone to errors compared to paper returns. The IRS processes e-filed returns more quickly, often resulting in refunds within 21 days.
- Opt for Direct Deposit: Choosing direct deposit for your refund reduces wait times and
avoids the potential for mailed checks to be lost or delayed. - File Early: Submitting your return as soon as tax season opens can help you get ahead
of potential bottlenecks. - Double-Check for Errors: Mistakes on your return, such as incorrect Social Security
numbers or mismatched income data, can trigger delays. - Monitor IRS Updates: Stay informed about IRS processing timelines and potential
delays by visiting the IRS website or consulting a tax professional.
The Bottom Line
While the IRS is making progress in addressing its long-standing issues, many taxpayers may still encounter challenges this year. Understanding the causes of delays and taking proactive steps can help you navigate the process more smoothly.
At Brite Financial Services, we’re here to make tax season stress-free. Whether you need help with filing, navigating refund delays, or planning for the future, our experts are ready to assist. Reach out today to ensure your finances stay on track.
Don’t let delays hold you back—let us help you stay ahead this tax season!