It's hardly a secret at this point that 2021 has been a bit of a struggle for the IRS. As we've been told, the reasons include – as with just about every government agency (and company) around the world – the pandemic, as well as, in the IRS's case, the need to distribute two new rounds of stimulus checks to millions of U.S. taxpayers around the world at short notice.
On the other hand, the pandemic has been around for over a year now, and the system for distributing those stimulus checks was set up back in 2020...
Here, Bright!Tax partner and managing Certified Public Accountant Allyson Lindsey looks at some of the issues and delays Americans, including expats, are experiencing with the IRS; the reasons for them; and what (if anything) American expats can do about them...
As most American taxpayers, even those living abroad, know, Tax Day for most American taxpayers back in the U.S. was extended to May 17 (next Monday; expats have until June 15, though any U.S. tax payable would have been due April 15, and deadline extensions can be arranged).
Already, though, the IRS has begun processing the returns it's received, and managing to complete, it says, 90% of 2020 tax returns within three weeks.
Not making this easy though, apparently, is the fact that there are an unprecedented number of this year's returns are being flagged for manual processing.
Meanwhile, although stimulus checks were originally issued based on 2019 (and in some cases 2018) incomes, all three rounds were technically tax refunds for the 2020 tax year. This means that many more returns need checking, in case of an income discrepancy that could mean an additional stimulus sum may need to be paid.
The knock-on effect of processing more returns manually has meant that many Americans are currently experiencing delays in receiving their refunds.
Furthermore, the stimulus legislation passed in December 2020 contained some changes to eligibility for the Additional Child Tax Credit and the Earned income Tax Credit applied to the 2020 tax year, depriving the IRS of time to apply the changes to the computer systems – meaning yet more manual reviews.
According to reports, the IRS currently has a backlog of around 30 million tax returns to review.
Bearing in mind, too, that it’s the first full tax season that the IRS has had to deal with since the pandemic struck – and that many IRS staff are still working remotely – the reasons for the delays in processing, and issuing refunds, become clearer.
Unfortunately, there’s not much that you can do if you’re waiting for a refund. Even though the delay may take up to ten weeks. And the IRS advises that you don’t call them (see next section), but that you just try to be patient.
Not answering the phone
The reason that the IRS advises not to call their offices is because, besides all of the already mentioned issues, they agency is also short-staffed, and this means it’s very hard to get through.
Forbes recently reported recently reported that the IRS is answering just 7% of calls to its account management lines, and just 2% of calls to its 1040 helpline. It says there's also been a 300% increase in calls being made to the IRS this year.
Two of the main reasons that Americans – including expats – are said to be trying to call the IRS, are to ask why they haven’t received their refund yet, or to ask why they haven’t received the full amounts of stimulus payments that they believe they are owed.
In neither case, the IRS says, will calling speed up the process at this time. This is because the most likely reason a refund hasn’t been received is systematic delays, while the full and final stimulus payment amount will be calculated and paid automatically when a 2020 tax return has been filed and processed. Phone calls can't speed up either process.
Therefore, patience is unfortunately the only option for now.
Seek advice and catch up
As most AXFNJ readers will be aware, all Americans, including those living abroad, have to file a U.S. tax return if their global income exceeds IRS thresholds, which start at just US$5 for Americans who are married to, and filing separately from, a non-American.
Filing from abroad involves filing additional forms to claim credits and exclusions for expats, as well as, typically, foreign currency conversions and reporting foreign bank accounts, investments and business interests. We therefore normally advise Americans who live outside of the U.S. to seek advice from an expat tax specialist, in order to ensure that they fulfil all their reporting obligations and realize their best outcome.
And Americans who've been living abroad but not filing U.S. taxes can often catch up under an IRS amnesty program known as the Streamlined Procedure.
Allyson Lindsey is a partner and managing Certified Public Accountant at Bright!Tax, an online global provider of U.S. tax advice and services for expatriate Americans around the world. Those wishing to stay on top of coronavirus developments from a tax perspective can check out Bright!Tax's Coronavirus News webpage.
The views expressed above are for general information purposes only, and should not be construed as recommendations or advice for any individual, nor should any action be taken on account of the information presented. Further information may be obtained by contacting Bright!Tax at https://brighttax.com.
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