Mistakes with child tax credit, stimulus can trigger refund tax delays, IRS warns

Tax season, which officially kicked off Monday as the IRS began accepting returns, is likely to stretch the patience of many tax filers, professionals and Internal Revenue Service employees. 

IRS Commissioner Chuck Rettig is urging taxpayers to take special care this year due to several critical tax law changes in 2021 and ongoing challenges facing the IRS related to the pandemic.

More than 160 million individual tax returns for the 2021 tax year are expected to be filed.

And the IRS continues to deal with a backlog and must "catch up on past tax returns affected by the pandemic," according to Rettig.

"We worked hard. We tried our best. We didn't always get it right," Rettig said in a conference call with the news media. 

"We know people are struggling. We want them to know that we're doing everything we can to help." 

He said IRS employees will do everything possible with the available resources to serve taxpayers this year. 

As of Dec. 4, 2021, the IRS said it has a backlog of 6.7 million unprocessed individual returns and 2.6 million unprocessed amended individual returns.

► The Daily Money:  Get our latest personal finance and consumer news in your inbox

What are some key trouble spots: Rettig acknowledged already that this could be a frustrating year for tax filers and tax professions. IRS is blaming its lack of resources and notes the employees continue to work with an "all hands on deck" approach. 

IThe IRS phone lines are expected to continue to be jammed and difficult to get through, Rettig said on the call Monday. Last year, the IRS received more than 100 million phone calls to its toll-free line.

Who needs to watch out: The IRS urged extra caution for those who received money through the advance child tax credit and the third stimulus payment in 2021.

Be absolutely certain that the amounts you received last year for the monthly advance child tax credit payments and the Economic Impact Payment match up with government records and are entered correctly on the 2021 federal income tax return.

"Incorrect entries when reporting these payments mean the IRS will need to further review the tax return, creating an extensive delay," the IRS warned Monday.

To help taxpayers, the IRS is mailing IRS Letter 6419 to families who received advance payments for the child tax credit last year from July through December. Married couples filing a joint return are expected to receive two letters.

► Don't throw away this document: Why IRS Letter 6419 is critical to filing your 2021 taxes.

Reporters on the call Monday indicated that some tax filers are complaining that they're seeing incorrect dollar amounts listed on the Letter 6419 that they've received.

IRS officials said the agency is looking into these complaints. Rettig told reporters that he doesn't know how many letters could be wrong but the number is nowhere near millions or hundreds of thousands. 

He said the IRS would release more information on that situation when it is available. 

Ken Corbin, wage and investment division commissioner and chief taxpayer experience officer for the IRS, said it is possible that issues may involve taxpayers who moved or changed bank accounts in December and now are seeing discrepancies with the information on their latest correspondence with the IRS on the Letter 6419. He noted the letter might have been generated in those cases before money may have been received by the taxpayer. 

The IRS is expected to release more updates on the issue.

Tax filers also can check their payment amounts in their Online Account, which has to be set up on IRS.gov in addition to the letters.

The IRS is also mailing Letter 6475 as soon as this week regarding the third Economic Impact Payment, which was issued from March through December last year. 

► Tax season 2022:  IRS now accepting tax returns. What to know before filing taxes about your refund.

Letter 6475 says, “Your Third Economic Impact Payment” near the top and "Letter 6475” on the bottom. 

What dates matter to you: This year, your 2021 tax return is due April 18. (Those who live in Maine or Massachusetts have until April 19 because of the Patriots' Day holiday in those states.)

How soon will you get a tax refund: If your tax return has no issues, the IRS said most people can expect to receive a refund within 21 days of when they file electronically if they choose direct deposit. 

The average tax refund last year was more than $2,800. 

► 2022 tax advice:  How to get child tax credit cash, charitable deductions and free help

But it's important to note that early filers cannot expect a quick refund in early February if their return involves the earned income tax credit or the additional child tax credit. 

By law, the IRS notes, the agency cannot issue a refund before mid-February for returns involving the EITC or the additional child tax credit. 

"The law provides this additional time to help the IRS stop fraudulent refunds from being issued," the IRS has stated. 

Some urged to file: Many people will want to file a 2021 tax return even if they aren't required to do so because of their low income. Many should file anyway if they qualify for certain tax credits or paid some federal income tax by having taxes withheld from a paycheck. You might qualify for a tax refund but only if you file a return.

More about the backlog: The IRS has been correcting significantly more errors on 2020 tax returns than in previous years, Corbin said.

More than 10 million electronically filed returns contained errors requiring a manual review of the return information, he said.

"We’re using what we learned last year to lay the groundwork for this year so that we can help individuals avoid processing errors," he said.

Corbin said the IRS is processing returns in the backlog in the order received and working to get through the inventory. The IRS said it received nearly 168 million 2020 tax returns. 

"We recognize how anxious people are if their tax return has not finished processing," Corbin said. "For those who have received a letter from us, please reply promptly."

What IRS officials advise: File electronically, instead of a paper return, to avoid delays. Make sure the return is accurate, reflecting complete information regarding the advance payments for the child tax credit and the third stimulus payment. Have your tax refund directly deposited into a bank account to avoid mail delays. 

"Filing a paper tax return this year means an extended refund delay," Rettig said in a prepared statement. 

ContactSusan Tompor via stompor@freepress.com. Follow her on Twitter@tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.