IRS return processing backlog shrinks, but remains an issue

Coming out of the COVID-19 pandemic, the Internal Revenue Service continues to deal with a processing backlog, although the numbers do not appear to be as daunting as it had when the world was shut down. 

IRS backlog includes current and late returns

The agency posted on its website that as of December 9, 2022, it had 2.5 million individual returns received during the 2022 calendar year that are still unprocessed, including returns from both the 2021 tax year as well as late returns filed from previous years. An estimated one million of these returns are paper returns that are awaiting review and processing.

The number of unprocessed returns represents a reduction of the total amount of the backlog from August. According to the recently released Publication 5456 (the agency’s annual financial report for FY 2022), the IRS had a backlog of nearly 7.6 million unprocessed individual returns as of August 12, 2022, with nearly 6.7 million business returns unprocessed at that time. 

Overall, the agency processed 260 million federal tax returns and forms, collected $4.9 trillion in gross taxes, and issued an average refund of $1,838 to individuals who filed a return that triggered a refund in FY 2022, according to the annual report. 

Staffing shortages partly to blame for IRS backlog

One of the issues contributing to the lingering backlog, as noted in the annual report, is the ongoing staffing shortages. The agency has had had a number of new hires and it also has received additional appropriations in the Inflation Reduction Act of 2022 to address overall agency staffing issues (the plan on how those funds will be used is due to Congress in early 2023). The annual report highlighted some of those needs to help manage the backlog, including people on hand to handle processing as well as in the development of new automated tools to help accelerate the processing. 

However, “as the IRS develops and deploys more automated tools for taxpayers, it will need to ensure that the tools are operating as intended and improving the quality of its customer service,” the annual report states. 

Taxpayer errors contribute to IRS backlog

Of 2.5 million unprocessed returns, the IRS estimates that about 60 percent (1.5 million) require some kind of error correction or other special handling. For the returns requiring special handling, it could take the IRS more than 21 days to issue a refund. 

The agency did note that it prioritizes tax returns that generate a refund. “Tax returns reflecting tax owed are processed last, but if a payment is mailed with the tax return, the payment is separated upon receipt and deposited to ensure the taxpayer account is credited for the payment,” the IRS said on its website. 

Mistakes that require correspondence from taxpayers could delay resolution. IRS posted that if there is an issue such as missing or wrong information, or the suspicion of identity theft, it could take 120 days or longer to compete the resolution of any issues related to filing of a tax return.