Some facing a desperate wait for needed tax refunds
As a 58-year-old woman on disability, Robin Short of Wallingford, Connecticut, relies on her tax refund to catch up on bills. She filed her return electronically in February, opting for direct deposit so she could get her $773 refund quickly.
She’s still waiting, as are millions of others. The IRS is slowly resuming operations after pandemic-related lockdowns, but delayed refunds are devastating to some.
Tax refunds are a lifeline
Tax refunds, which last year averaged $2,979, are the largest single infusion of cash for about 30% of U.S. families, says Fiona Greig, consumer research director at the JPMorgan Chase Institute, which researches economic issues. While many Americans use refunds to save or to pay down debt, significant numbers rely on the money to cover bills or to get needed medical care — and that was true even before COVID-19.
Delayed refunds can lead to evictions, hunger, creditor lawsuits and health problems from postponed medical care, among other ill effects.
Most IRS operations were shuttered by pandemic
The IRS started shutting down tax return processing centers in March, along with its taxpayer help line, local offices and volunteer assistance programs. Soon after, it focused on sending out more than 159 million payments as authorized by the coronavirus relief package. By mid-May, the agency faced a backlog of 10 million pieces of unopened mail, including paper tax returns.
People who filed electronically generally got their refunds unless those returns were flagged, commonly because of identity theft concerns or a mismatch between the information on the return and what was provided by employers or financial institutions.
In Short’s case, the TurboTax software she used counted a $3,800 annual pension payment twice, as both 1099 income and as W-2 income. The IRS sent her a letter about the error and advised her not to contact the agency for 60 days while the issue was resolved. Then, the lockdowns happened.
Short says her pension and monthly Social Security disability checks don’t cover her expenses. She makes arrangements to pay overdue bills, such as her power bill, when her refund arrives.
Refunds used to catch up
Putting off bills, then using tax refunds to catch up, is a common practice among strapped households, Thompson says. A survey of people who used free filing methods for lower- and moderate-income taxpayers last year found roughly half said they needed their refunds for bills, rent, groceries and other everyday expenses, according to Prosperity Now, a nonprofit that promotes financial security.
People also increase their health care spending significantly after refund checks arrive. A 2018 study of 1.2 million checking account holders found health care spending rose 60% in the week after people received refunds, indicating many were catching up on care, Greig says.
It’s not clear how long it will take the IRS to address the backlog or when taxpayers can expect their money. People can try using the “Where’s My Refund?” tool on the IRS site or call the taxpayer help line, but getting through to a human is difficult even in normal times. Congress has cut the IRS’ budget by 20% since 2010, leading to a 22% reduction in staff, according to acting National Taxpayer Advocate Bridget Roberts.
Rather than wait for the IRS to return their money each year, taxpayers can adjust their withholding so they get more money in their paychecks.
This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: email@example.com. Twitter: @lizweston.
Deferred Care: How Tax Refunds Enable Healthcare Spending https://institute.jpmorganchase.com/institute/research/healthcare/report-deferred-care
Taxpayer Advocate Service https://taxpayeradvocate.irs.gov/contact-us