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WASHINGTON — Confusion. Amnesia. New paperwork. Delays getting through to the IRS.
These are some of the top pandemic-induced frustrations marking this tax filing season, both for tax preparers and their clients.
A recent survey by the National Association of Tax Professionals found that "only 4% (of tax preparers) think that taxpayers are knowledgeable about the tax law changes, which means longer conversations with their clients and chasing down documents needed to file their return."
Stimulus payments create a paper chase
The IRS recently mailed letters to taxpayers that report how much a filer received in the third round of stimulus payments, which the agency started sending out in March 2021.
"Absolutely no one remembers getting it," said Texas-based enrolled agent Tynisa Gaines.
And by "it" Gaines doesn't just mean the letter, but the actual payment itself. She attributes it to the stress of the past two years. "People have blocked out 2020 and 2021."
Even though many don't recall it, her clients who were eligible had gotten both the payment and the letter, Gaines said. But she only can establish that after sending her clients on a treasure hunt. If they lost their letter, she tells them to use the IRS portal to retrieve information on their stimulus payments. For some, that process has proven too difficult or time-consuming. So she then asks them to comb through their bank records for proof the stimulus money was deposited in their accounts last year.
Providing proof of actual payment and reporting the exact dollar amount is critical if the taxpayer doesn't want the IRS system to flag their return for a discrepancy, which could delay them getting their refunds for weeks or months, Gaines said.
On the bright side, she noted, clients whose returns were completed and filed electronically have gotten their refunds well within the 21-day window the IRS promises.
Reconciling child tax credit payments
Confusion and aggravation are even greater when it comes to another letter the IRS mailed recently reporting how much eligible taxpayers were sent in advanced child tax credit payments. The payments began going out monthly in July 2021.
Normally parents get up to $2,000 per child and they see that money when they file their tax return the following year — either as a refund or as a dollar-for-dollar reduction of what they still owe the IRS. But this year, when they file their 2021 returns, they already are likely to have received the first half of their credit — which was temporarily increased to a maximum of $3,600 for children under 6 and $3,000 for children ages 6 through 17. So they will only be able to claim the second half of it when they file. That will possibly result in a smaller refund or less of a reduction in the taxes owed than many parents are used to.
Adding more complexity, the advanced payments were calculated based on the filer's income from a prior year, so they must reconcile on their tax return whether they were paid too much or too little based on their actual 2021 income.
Louisiana-based enrolled agent Skip Touchet is worried some people will be "shocked" once they figure out what they're getting or not.
In particular, he worries about those who decided early in 2021 — before anyone knew they would be getting advanced payments — to decrease their tax withholdings. By doing so, they received bigger paychecks during the year with the understanding they would get less of a refund or a slightly bigger tax bill at tax time.
They may find, though, they will owe more money than expected because they reduced their tax withholdings for last year and now can only claim the second half of their child tax credit.
Some parents, however, decided to opt out of getting the advanced payments through the IRS portal last year. But each spouse had to do it separately, which is not exactly intuitive for most married couples filing jointly.
That's another reason why, all told, reconciling the advanced child tax credit issues "has been a nightmare," said California-based enrolled agent Laura Strombom.
Reaching the IRS takes a long time
Getting through to the IRS has also been a major hurdle this tax season. The agency is already contending with a backlog of matters related to 23 million returns and is understaffed.
Touchet says he often starts calling early in the morning. On a good day — which he estimates is 25% of the time —he will get through to someone on the hotline for tax professionals but only after waiting an hour or more.
The wait for taxpayers reaching out on their own is often much longer.
Gaines said she has a client who was told by the IRS that she owed $10,000 because she had not paid taxes on her pension. Except that she did. The client can't get through to anyone to address the problem. Now, Gaines said, "We don't want to file her 2021 return (yet) because she has a refund (coming) and they'll probably take it to pay what she doesn't owe."
Tax preparers bear the brunt of frustration
The added frustrations of this tax season mean more clients are barking at the messenger.
"We're getting squeezed between the clients and the IRS," Touchet said.
Robin Rae Huntley, an enrolled agent in Florida, summed things up more bluntly. In early February she said, "I've filed 59 returns and been yelled at by at least 50 of (the clients)."