Is Your Tax Refund Late? Here’s Why.

COVID is only part of the story.

There has been an increasing chorus on both online forums and media outlets, describing the delays of our 2020 tax refunds. Even electronic tax returns are behind.

Initially, I thought that maybe the IRS was slow to ramp up their in-office work, which processed the paper returns. And that’s partly the case.

Also part of the reason is that they had to deal with last-minute tax law changes, which we’ll describe more below.

But the biggest reason for the delay, and the most insidious, is that the IRS has been systematically gutted, rebuilt, then gutted again, resulting in the slowest processing times in a generation.

The COVID Cause

Let’s discuss the obvious reason for delays at the start.

The pandemic has wreaked havoc on our entire way of life, including how government functions.Work from home only kind of works, especially when so much of your workload is submitted with ink and paper.

The COVID lockdowns hit right around tax season, which put the IRS way behind back in 2020, when it was processing 2019 tax returns.

They are still dealing with those returns in 2021, right in the middle of the next tax season.

To say that they are overwhelmed is an understatement, which leads us to the second cause of delay.

New Laws

The past 15 months have seen a flurry of stimulus bills and other support mechanisms.

While most people think of the direct payments associated with these bills, a large portion dealt with tax law. And these laws had to be enforced for that very same year.

Here’s a brief timeline:

2020

• March 6: Coronavirus Preparedness and Response Supplemental Appropriations Act
• March 18: Families First Coronavirus Response Act
• March 18: Foreclosure and eviction moratoriums
• March 20: Suspension of student loan payments and interest
• March 27: CARES Act
• April 24: Stimulus “Phase 3.5”
• June 5: Paycheck Protection Program Flexibility Act of 2020
• July 4: PPP extension
• August 10: Four simultaneous executive actions, including deferred payroll taxes
• September 1: CDC emergency eviction moratorium
• December 21: Omnibus spending bill, with COVID relief

2021

• January 20: Extension of student loan and eviction programs
• March 11: American Rescue Plan

Those are just the major actions. Other executive orders and federal agency actions were coming across the IRS’ desk in a flurry.

The biggest change was American Rescue Plan, which set up the paid in advance Child Tax Credits and retroactive tax relief on unemployment income.

The Big One

These immediate challenges would have slowed down any government agency operating at full capacity, but the IRS is anything but.

I alluded to the fact that the IRS had seen a rollercoaster budget over the past 30 years, and it has taken a toll on their ability to perform under regular circumstances, much less a pandemic.

The underfunding started in 1994, when Newt Gingrich became Speaker of the House of Representatives, and the new Republican majority villified the agency. They won by making the IRS out as a “tax and spend” boogeyman, and now they had to deliver.

By 1998, the Republican anti-IRS message was so strong that Bill Clinton was basically forced to sign into law strict limits on the auditing and collecting power of the IRS.

The agency’s destruction probably would have been complete by now, but 9/11 happened and diverted the country’s attention. As a result, the budget for the IRS crept back up over the ensuing decade to its old levels. And do did its collections.

The next wave of cuts didn’t start with a holy war against the IRS, but rather the passage of the Affordable Care Act. Republicans have been apoplectic with rage for the past 11 years, and went into overdrive when Chief Justice John Roberts upheld the ACA as constitutional under the government’s right to levy a tax.

Since then, the right has targeted the IRS with a laser focus to weaken the ACA. Unfortunately, they have also weakened every other aspect of the agency, resulting in the lowest budgets, lowest employee count, and the lowest collection rate in years.

The IRS had a skeleton crew going into the pandemic by design, and now the negative effects are coming to fruition.

The Takeaway

Historically, the supporting or opposing the IRS has been a political tightrope, since both parties win votes by lowering taxes but simultaneously realize that taxes fund all the cool programs they want to put in place.

Do you cut the budget to garner votes, or do you fund an agency who actually produces a positive ROI (i.e. reduces the deficit) with more investment, which can also help win votes.

Regardless of what the politicians do, my view is that I’m happy to pay the taxes that I owe.

Absolutely I am going to take the deductions and credits that are lawfully available to me, since that’s the government’s way of giving me money by doing (or not doing) something they approve of.

But I’m not going to piss and moan, at least that much, about my tax bill because I like roads to drive on, water to drink, and someplace that will take care what goes down my toilet.

Politically, you need to keep an eye on what exactly our representatives are supporting. Go beyond the rhetoric and get to the numbers. Make a decision for yourself. Then sleep easy knowing you supported your candidate as an informed citizen rather than one who just followed the cult of personality.

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This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.