IRS Backlog Delays Tax Refunds

If you’ve been waiting for your federal tax refund, don’t hold your breath. Tax return processing backlogs are at historic highs. Between the COVID-19 pandemic, multiple tax law changes, and outdated systems, the IRS is overburdened and under-resourced. Additional funding for IRS staffing and infrastructure proposed in early versions of the Build Back Better infrastructure bill was stripped out during Congressional negotiations. As of now, it doesn’t look like additional IRS funding will re-appear in the final bill, assuming there is one. 

Over the summer, the IRS reported a backlog of 35 million unprocessed 2020 individual income tax returns. That’s a 500% increase over pre-pandemic times, just for initial return filings. Last month, the IRS had a backlog of over 2.7 million unprocessed amended returns. Business and employment return processing is significantly backlogged, too. 

The IRS’ website explains some of the reasons why a tax return might take longer to process than others, including corrections to the Recovery Rebate Credit, the Earned Income Tax Credit or an Additional Child Tax Credit using 2019 income, and the need for general review. These issues require manual review by an IRS representative. Staffing issues prolong the backlog for manual reviews. 

So, what can you do if your tax refund hasn’t arrived after weeks of waiting? Unfortunately, not much. Calling the IRS is not practical – there are long waiting times on hold and the agents can’t see information in their systems if the return is not processed. Individual taxpayers are directed to check the refund status from original returns at https://www.irs.gov/refunds. For amended individual returns, the link is https://www.irs.gov/filing/wheres-my-amended-return. Businesses need to check their online account for information. More details and contacts are at https://www.irs.gov/businesses.

Income tax return processing at the IRS is backlogged like it’s never been before. If your return included the Recovery Rebate Credit, other tax credits, or just needed a manual review, your patience is being sorely tested right now. Unfortunately, all you can do is check the IRS website periodically to get a status update. Don’t even think about calling the IRS to find out what’s going on. After waiting on hold for up to an hour, the agent who answers probably can’t assist you because unprocessed returns aren’t visible in their system.

It’s a frustrating but understandable situation, given that the IRS is overburdened and under-resourced. Unless the IRS gets more funding for staffing and systems, conditions cannot improve any time soon. The need for taxpayers to be patient will be necessary for quite some time to come.

Holiday Shopping Scams

‘Tis the season to be jolly! The joy and excitement we typically feel are even greater because we can finally celebrate with friends and family, after last year’s pandemic holidays at home. We’re still shopping online as much as ever before because it’s so darned convenient. But between all the shopping and partying, people can forget to protect themselves from becoming a holiday scammer’s next victim.

Holiday shopping scams can steal your money, personal information, and your festive mood. The FBI reports that every year, thousands of people become online holiday shopping crime victims. The two most common holiday scams are non-delivery, where a buyer pays for goods online that are never received, and non-payment, where goods are shipped but the seller is never paid. In 2020, these scams cost people more than $265 million. Credit card fraud cost another $129 million in losses. Gift card fraud is also “popular” during the holidays.

The FBI has some tips to protect yourself and your wallet during the holidays:

Practice good cybersecurity hygiene

  • Don’t click any suspicious links or attachments in emails, on websites, or social media that could be a scam to get your personal information or download malware. 
  • Be especially wary if a company asks you to update your password or account information. Look up the company’s information on your own and contact them.

Know who you’re buying from or selling to

  • Check each website’s URL to make sure it’s legitimate and secure. If a site you’re buying from it doesn’t have “https” in the address, don’t enter your information. 
  • Verify the legitimacy of a buyer or seller before moving forward. If you’re using an online marketplace or auction website, check their feedback rating.
  • Avoid sellers who act as authorized dealers or factory representatives of popular items where no such deal is likely to exist.

Be careful how you pay

  • Never wire money directly to a seller. 
  • Avoid paying for items with pre-paid gift cards. In these scams, a seller will ask for the gift card number and PIN. Instead of using that gift card for payment, the scammer will steal the funds, and you never receive your purchase.
  • Use a credit card when shopping online and check your statement regularly. If you see a suspicious transaction, contact your credit card company to dispute the charge.

Keep your holiday season jolly and don’t get caught up in one of these scams while you are shopping and celebrating. Think you might be a holiday scam victim? Learn more about scams and how to protect yourself at the FBI website – https://www.fbi.gov/scams-and-safety/common-scams-and-crimes/holiday-scams.

Retirement Plan Contribution Limits for 2022

With only six weeks left in 2021, taxpayers are reviewing their retirement saving opportunities for this year and for 2022. A retirement savings review often comes to mind at year-end and at tax time, since retirement plan contributions are often fully or partially tax deductible, depending on the taxpayer’s circumstances.

Individuals who earn taxable compensation during the year are eligible to contribute to a retirement plan, such as a traditional or Roth Individual Retirement Account (IRA). They can also participate in an employer-provided retirement plan, like a 401(k), 403(b), or the federal government’s Thrift Savings Plan. The tax rules for figuring out the tax savings from retirement plan contributions are complicated, and they apply differently to different taxpayers.

One set of tax rules that applies to all taxpayers is retirement plan contribution limits. Every year, the IRS publishes the dollar contribution limit by retirement plan type. Some years there is no dollar adjustment, but there’s no way to know without checking.

So, what are the 2022 contribution limits for IRAs and most employer-sponsored retirement plans? 

Traditional and Roth IRAs

Total contributions made to all of a taxpayer’s traditional and Roth IRAs for 2022 can’t be more than total taxable compensation for the year, up to $6,000. The limit increases to $7,000 for taxpayers who are age 50 or older, to help those taxpayers who have a shorter time frame until retirement and need to “catch-up” on contributions to fund their future income needs.

Employer-Sponsored Plans

Employer-sponsored plans, like a 401(k) or a 403(b), are types of qualified profit sharing plan that allow employees to contribute a portion of their wages pre-tax to an individual account. The employee contribution limit increased for 2022, up from $19,500 to $20,500. The employer may also contribute to employees’ accounts; however, employer contributions do not impact employee contribution limits.

Tax rules for figuring out the tax savings from retirement plan contributions are complicated, and they apply differently to different taxpayers. Plus, the contribution limits are different based on the retirement plan type. Contribution dollar limits are subject to change every year. Tax savings depends on each taxpayer’s circumstances. 

Want more details about retirement plan options, contribution limits and tax savings? The IRS has it all at https://www.irs.gov/retirement-plans/plan-sponsor/types-of-retirement-plans.

Suspect Fraud? Report it!

Phishing emails, IRS impersonator calls, fake bank wire instructions. The list of methods to commit fraud or scam people out of their money has exploded! Scammers and fraudsters are brilliant at using technology to reach more victims. They even use online dating to commit “romance scams” and extract funds from mostly older Americans seeking companionship.

And those fraud methods sure are working! In 2020, identity fraud and other related scams cost American consumers a total of about $56 billion, impacting about 49 million victims. That’s according to data from the 2021 Identity Fraud Study by Javelin Strategy & Research released back in March. The Federal Trade Commission (FTC) reports that romance scams were the costliest to older Americans, who suffered almost $84 million in financial losses in 2020. 

What should you do if you are, or think you may be a victim of fraud, scam, or unscrupulous business practices? The FTC has a dedicated website for victims to file a report and obtain guidance with “next steps” based on the type of scam. 

Check it out at https://reportfraud.ftc.gov/#/. Here’s how it works:

What can I report?

The FTC recommends that consumers report any action or experience that they think might be a fraud, scam, or unscrupulous business practice. Fraud and scams related to COVID-19 are rampant these days. FTC has more information about how to decide whether to report your experience at https://www.consumer.ftc.gov/.

I’m not sure if it’s a scam or fraud — should I still report it?

Absolutely! If your experience feels wrong, even if it’s minimal, the FTC wants to know about it. Reporting fraud or potential fraud gives the FTC and its 3,000 law enforcement partners valuable information to spot patterns and enforce the law. The website also allows consumers to update and track reported fraud cases.

Can I file a report if I don’t live in the U.S.?

Yes! Report your experience on https://econsumer.gov/#crnt. This site shares your reported information with the FTC. In addition, it partners with 35+ consumer protection agencies across the world to identify trends and prevent scams. The site is available in English, Spanish, French, German, Korean, Japanese, Polish, and Turkish.

Methods to commit frauds and scams have exploded. Fraudsters used technology to steal over $56 billion in 2020 alone. If you are, or think that you may have been, a fraud victim, make sure that you report it to the FTC. Your action makes a difference by helping 3,000+ law enforcers spot problems and patterns. Learn more about scams, how to submit a report, and how the FTC works to stop them at https://www.consumer.ftc.gov/.

How to Respond to an IRS Notice

You’re flipping through the mail when you see it. An envelope with an IRS return address. OMG! What’s this about? Sure, you’re nervous but don’t stick it in a drawer. No matter what, it’s information that needs your attention. Whether you rip it open immediately or wait until you’ve sat down, you eventually see it – a Notice from the IRS with potential unwelcome news.

Now what? Your IRS Notice may be long and difficult to decipher, but it explains the reason they are contacting you and instructions on how to handle the issue. Maybe information reported by a third party does not match your return or you made a math error. The IRS might just be asking for clarifying information. 

Regardless, let’s simplify how to respond with a little Q&A:

  • Why did the IRS send me a Notice?

The IRS sends Notices to taxpayers who have a balance due, are due a different refund than originally reported, their return has been changed, or additional information is needed. Notices may also communicate the need to verify taxpayer identity or a delay in processing the return. Details are in the Notice. Read it carefully.

  • How should I respond?

Typically, you only need to respond if you don’t agree with the information in the Notice, if the IRS requested additional information, or if you have a balance due. If the income or payment information reported to the IRS doesn’t match your tax return, check to see if you made a mistake. It happens. Just pay the amount due, or at least as much as you can.

  • What if I don’t agree?

Sometimes the IRS makes a mistake or does not understand the information on your tax return. If that’s the case, make copies of any schedules or other clarifying documentation. Complete the Notice Response Form and include any necessary explanations. Don’t assume that the IRS can understand your documents without an explanation.

  • When should I respond?

IRS Notices require you to respond by a specific date. There are two main reasons you’ll want to meet that deadline – to minimize the accrual of any additional interest and penalty charges, and to preserve your appeal rights if you don’t agree. Keep copies of all Notices and your response (with support documents) for future reference.

Getting an IRS Notice is nerve-wracking but ignoring it will only make it worse. Read the Notice carefully and respond with an explanation by the due date if you don’t agree. Made a mistake? Pay the amount due, or as much as you can, to reduce additional interest and penalties. When you know what to do, getting a Notice from the IRS won’t make your heart skip a beat.

Want more details? Check out the IRS website.