Tax refunds are delayed for millions, which may trigger some trouble ahead

Millions of people are frustrated that their 2020 federal income tax refunds are missing in action in the wake of what one tax official called "the perfect storm."

And sadly, the angst could grow as many families receive the first payment of up to $300 a month for the advanced Child Tax Credit, while others are left on the sidelines wondering why they didn't get all the money they're expecting now.

Tax troubles in the 2021 season are bound to snowball as one problem rolls along and triggers another. At some point, things can improve but for many, the question is when.

Consider, for example, if your 2020 tax return hasn't been processed yet and your family welcomed a baby last year. How is the Internal Revenue Service going to send you money as soon as July 15 for a child born in 2020? The child would be claimed on a 2020 return but wouldn't show up on the 2019 tax return that the IRS would end up using to send out an advance now on your credit if that 2020 return isn't processed yet.

The IRS said tax returns processed by June 28 will be reflected in the first batch of monthly payments for the advance Child Tax Credit scheduled for last Thursday (July 8.) But others could be questioning what happened to their money.

Typically, tax professionals say many people will receive their federal income tax refunds within a range of one to four weeks after electronically filing a return.

So if you filed at this year's deadline on May 17, you'd expect that refund by mid-June or earlier. File in March and the refund should be there by April.

Filing a paper return always drags out the process, and it could take a month or more, some say maybe even three to four months, to get a refund. About 17 million returns were filed by paper.

Now, things are taking longer for many people. The IRS had a massive backlog of 35.3 million individual and business income tax returns that were filed but not processed by the end of the 2021 filing season, according to the June 30 report by Erin Collins in the National Taxpayer Advocate.

The IRS, for example, needed to change its systems to recalculate unemployment insurance benefits and the Advance Premium Tax Credit involving health insurance after tax legislation was enacted in March during the filing season.

About 15.8 million returns needed further review, perhaps due to a mistake.

"Despite all its challenges, the IRS processed 136 million individual income tax returns and issued 96 million refunds totaling $270 billion during the 2021 filing season," the report noted.