The IRS is swamped with 35 million unprocessed tax returns, meaning people will have to wait longer for refunds

Charles Rettig
Charles Rettig. Aaron P. Bernstein/Getty Images
  • The IRS has a massive backlog of tax returns, causing a refund delay for millions of people.

  • It offered no timeframe on how long it will take to sort through 35 million unprocessed returns.

  • The IRS's budget has been depleted in the past decade, leading to backlogs and lower enforcement.

  • See more stories on Insider's business page.

The Internal Revenue Service is grappling with a massive backlog of 35 million unprocessed tax returns, according to a new report from a government watchdog. That will cause millions of individual and business taxpayers to wait to receive potentially critical federal refunds.

The report from National Taxpayer Advocate Erin Collins, an independent organization within the IRS, released on Wednesday underscores the major challenges facing the cash-strapped agency after playing a major role steering economic relief to individuals and businesses during the pandemic.

The current backlog includes 17 million paper tax returns that aren't processed yet, along with 16 million other returns that require a review. An additional 2.7 million amended tax returns are still not processed. The size of the backlog grew four times compared to 2019.

The report offered no timeframe as to when people could get refunds. The watchdog acknowledged the significant strain many are likely to face as a result, particularly on the lower end of the income spectrum.

"For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog," the report said. "But particularly for low-income taxpayers and small businesses operating on the margin, refund delays can impose significant financial hardships."

The report comes as the IRS finds itself laden with new pandemic-era duties to disburse money to impacted Americans and families. The agency was responsible for getting stimulus checks out to millions of Americans throughout the pandemic. Now, it's charged with getting child tax credit payments out to families who qualify. As Insider previously reported, the IRS portal for getting those benefits to the poorest families is poised to leave those very recipients behind.

Former IRS Commissioner John Koskinen told The Washington Post's Jeff Stein that "the problem is not with IRS employees who work very hard. It's with Republicans in Congress who have refused to provide adequate funding for 10 years."

A 2020 report from the House Committee Budget found that the agency's budget had been cut by 20% from 2010 to 2018. Those cuts - which have resulted enforcement on the wealthiest Americans dropping, leaving potential billions uncollected - have led the White House to call for increased funding for the agency.

For low-income Americans, the budget's reductions may be felt two-fold. ProPublica previously found that lower-income Americans are audited at the same rate as the top 1%, since it's easier and more efficient to audit those taxpayers than the very complex filings of America's wealthiest.

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