A “technical issue” at the Internal Revenue Service caused a delay in the promised monthly delivery of Child Tax Credits this month, but that’s far from the only COVID-related tax reform that’s affecting disadvantaged taxpayers. There’s also been a sharp rise in letters from the IRS being sent out saying many who qualified for stimulus payments owe back taxes because of a complicated process called a “math error.”
Tax experts said this is among the many issues currently overwhelming the underfunded and understaffed institution, which inevitably the average taxpayer has to pay for.
The Tax Foundation’s senior policy analyst Garrett Watson said that it’s been an incredibly stressed two years for the IRS because of the short staffing and economic relief that’s been brought into the tax code to battle the COVID-19 crisis.
“It’s led to a combination of things, including making it harder for taxpayers to reach the IRS if they end up having notices or questions about potential errors in their returns and just getting returns processed more generally,” said Watson. “There’s been delays as well.”
The IRS said that they have now “resolved” the technical issue, which they estimated caused about 2% or less of child tax credit recipients not to get their September payments. The impacted group primarily included taxpayers who recently made an update on their bank account or address on the IRS Child Tax Credit Update Portal and affected payments to married filing jointly taxpayers where only one spouse made a bank or address change, said the IRS.
“We know people depend on receiving these payments on time and we apologize for the delay,” said the IRS in a statement.
Watson said the vaccination process and general reopenings from last year have been helping, but it’s essentially a giant “backlog” that needs processing. He also said IRS resourcing and enforcement, meaning decreasing the audit rate and having more agents to answer questions, needs to be addressed.
“For taxpayers themselves, but even for preparers who are working on their behalf. It’s even hard for them to get a hold of anyone or to go through the written correspondence, especially if there’s a math error,” said Watson.
The National Taxpayer Advocate (NTA) section of the IRS posted in a blog about the surge in “math errors” related to the disbursement of Economic Stimulus Payments vs the Recovery Rebate Credit since the pandemic disrupted the usual tax season.
Last year there were about 628,997 IRS math error corrections made, said the NTA.
The Wall Street Journal reported that as of the beginning of September 2021 about 11 million IRS math error notices, which looks like a first and final bill demanding money, have been sent out, which is astronomical compared to the average 3 million notices.
These notices give a 60-day time period for taxpayers to dispute the charges, made increasingly harder because of understaffing and an overloaded automated system.
“Unfortunately, because the math error notices do not clearly articulate what was adjusted and why, taxpayers are often left confused as to what changes have been made” or if they agree in the first place, wrote the NTA.
Also, the language of “rebate credit” or “stimulus payment” often left people confused as to why they would have to pay back freely given money related to the pandemic at all, wrote the NTA in a second blog post.
Watson said the demographic of taxpayers that are usually hit with these bills are people not connected to the tax system, disproportionately low-income households, families with children with low salary jobs that don’t always necessitate filing a return, and people who don’t have access to the internet or adequate help to file a return.
It’s the folks the IRS knows the least information about, said Watson, and they are more likely to make mistakes because this would be the first time filing for child tax payments, rebate credits or stimulus payments.
“Having some sort of safe harbor for taxpayers trying to do the right thing makes a lot of sense,” said Watson. “Especially if there’s established evidence that they’re working and trying to correspond to do the right thing and correct this stuff. It doesn’t make sense to penalize them further just because the IRS is overwhelmed.”
Watson said that if the reconciliation package being argued over in Congress presently passes it would add even more tax changes on top of all the issues the IRS is dealing with.
“The Build Back Better Act will restore the American dream for everyday individuals across our nation by creating millions of good-paying jobs, lifting children out of poverty and cutting taxes for working-class families,” said Chairman of the House Democratic Caucus and Congressmember Hakeem Jeffries (NY-8) in a statement.
Jeffries and colleagues in Congress are trying to get the “Build Back Better” bill passed along with the $1 trillion infrastructure bill and a debt ceiling increase in, before government funding runs out this Thursday, Sept. 30, reported PBS Newshour.
The bill could provide the IRS with much needed aid so that the burden stops falling on American taxpayers.
“On top of being the largest middle-class tax cut in American history, House Democrats are fighting to ensure that the bill provides upwards of $3 billion to the IRS to help reverse years of underfunding and understaffing. These critical investments will help close more than $7 trillion of tax gap and make sure the wealthy pay their fair share,” said Jeffries.
Ariama C. Long is a Report for America corps member and writes about culture and politics in New York City for The Amsterdam News. Your donation to match our RFA grant helps keep her writing stories like this one; please consider making a tax-deductible gift of any amount today by visiting: https://tinyurl.com/fcszwj8w