Tax refund delays are completely out of control right now.
Calling appears pointless as it is mostly automated, and checking your status on irs.gov only shows you if your tax return has been received by the IRS.
But, it does not tell you why your tax refund is delayed.
So, in this post, we want to go over the top 9 reasons why your tax refund is delayed this year.
Let’s jump into the reason for refund delays!
9 Reasons Why Your Tax Refund is Delayed
1. The IRS Is Backlogged By Millions
If you didn’t know, as of June 23, 2021, the IRS had 17.5 million unprocessed individual returns that had not been reviewed yet.
This includes returns received prior to 2021 that need to be manually reviewed because of error.
In fact, not too long ago, paper tax returns filed for the 2019 tax year were being stored in trailers until they could be looked at.
Now, the IRS says that due to the global outbreak, they are seeing delays in the processing of:
- tax returns filed on paper and electronically,
- delays in live phone support, and
- delays in answering any mail sent by taxpayers.
To help, they are rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available.
But as of now, they are still behind and are being processed in the order received.
2. Errors on Your Return
Another one of the reasons why your tax refund is delayed is due to errors.
Think like mathematical mistakes, forgetting to sign your return, or include your Social Security number can all contribute to the delay.
When errors occur, the return must be manually reviewed.
3. Direct Deposit Accounts Don’t Match Up
When your bank account does not match the information on your return, your refund is sure to be delayed.
Common mistakes include ownership of the bank account not matching with the filling status or name on the return, and mistakes in routing and account numbers.
If this is the case, 1 of three things can happen:
a. If the mistake does not pass IRS validation criteria, you will be issued a paper check instead.
b. If the mistake does pass the IRS validation criteria but the bank rejects the refund, you will receive a paper check.
c. If the mistake is accepted by the bank, you may have to talk with your bank to get your money back.
4. Identity Theft or Fraud is Suspected
Yup, criminals may be behind your refund delay.
The IRS flagged 5.2 million tax refunds for fraud last year, which is almost 50% more than in 2019. Of those, about 1.9 million were tagged for identity screening.
The IRS has filters that can identify potentially fraudulent returns.
When the filter does stop a return, refunds can be delayed until you verify your identity by providing the IRS Taxpayer Protection Program unit with information regarding current and previous returns.
Or, you can verify your income via W-2s.
Sometimes, the verification process can take upwards of a year to clear up.
You can check out more about tax refund delays due to fraud in this post.
5. Income Discrepancy
The IRS receives all W-2s and 1099s that you receive.
When the information you filed in your return does not match with the information the IRS already has, it can cause a delay in you receiving your refund.
In fact, any form of earned income you receive should be reported, even if you do not receive any forms for it.
5. Unemployment Benefits Exclusion
On March 11, a change to the American Rescue Plan allows taxpayers who earned less than $150,000 in modified adjusted gross income…
…to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers.
The IRS has determined that 13 million people may be eligible for the adjustment.
The problem is that some people already filed their taxes before the legislation was put into place.
This means the IRS now has to fix the issue for those who included the unemployment compensation in their income.
To do so, the IRS is automatically adjusting it but you can bet that it is adding to the delay.
6. The Recovery Rebate Credit Doesn’t Match
For those who didn’t receive all the stimulus payments they were eligible for in 2020, you can get a recovery rebate credit when you filed your 2020 tax return.
Some people are incorrectly filling out that line and claiming the incorrect amount on form 1040.
If you fall into this category, the IRS says that they will have to review your return manually, which will further delay your refund.
7. Incorrectly Claiming Dependents
It’s quite common that young adults forget to check with their parents to see if the parents are claiming them on their tax return before filling their own.
Or, that two parents end up claiming the same child.
When someone takes their own exemption while simultaneously is claimed as a dependent, or when two people claim the same child as a dependent…
…the IRS stops refunds until an amended tax return is filed.
8. Past Due Returns
When you fail to file previous returns, your refund can be delayed until you file the past-due return.
Additionally, if taxes are owed, the IRS will use your current refund and deduct the amount of past-due taxes.
9. Filed by Mail
Filing your return by mail is the fastest way to delay your refund.
This is because the mail takes more time to get to the IRS and paper returns take longer to process including longer to catch and errors.
Remember, the IRS had 17.5 million unprocessed individual returns that had not been reviewed yet.
This includes returns received prior to 2021 that need to be manually reviewed because of error.
Well there you have it, the top 10 reasons why your refund is delayed.
Before filing your taxes, you need to be sure that every detail in it is correct and accurate. That’s why working with a tax expert is recommended.
Here at LYFE, we offer tax preparation, tax planning, and tax resolution services to help you with your taxes. Get in touch with us today to learn more about these.