You may be able to get a refund on taxes you inadvertently overpaid three years ago.
And getting a refund on your 2022 taxes could be easier.
That’s the promising news from the Internal Revenue Service as it prepares for the new tax filing season. The deadline for filing most 2022 tax returns is April 18, although residents of many storm-stricken counties in California, as designated by the Federal Emergency Management Agency, have until May 15.
Many consumers may have already seen new refunds that were due them years ago.
IRS recently finished what it called “final corrections of tax year 2020” for people who overpaid taxes on the unemployment compensation they got in 2020.
About 12 million people nationwide owe $14.8 billion in refunds. The average refund is $1,232.
It’s not clear how many of those returns were from California residents. In 2020, 4.9 million California returns reported unemployment compensation. The state’s unemployment rate was more than 16% in the spring of 2020.
The refund confusion is the result of the federal American Rescue Plan Act of 2021, which became law in March 2021. It allowed people to exclude from their taxable income of up to $10,200 in 2020 if their income was less than a certain amount.
The problem came because many people filed their tax return before the provision became law.
So the IRS started looking over those filings, calculated how much tax people owed, and is sending eligible people refunds. In some cases it is applying the “found” money to other taxes due or other debts.
Affected taxpayers should receive a letter from the IRS explaining its action.
Tax refunds in 2023
The IRS in the recent past has had trouble keeping up with tax returns. Last year, about two-thirds of individual taxpayers were eligible for refunds, with the average amount about $3,200.
But Erin Collins, the National Taxpayer Advocate, reported this week that “the IRS failed to meet its responsibility to pay timely refunds to millions of taxpayers for the third year in a row.”
She saw some reason for optimism in the future.
Her report said the IRS has received significant additional funding to increase consumer service staffing. It has hired 4,000 new customer service representatives, and it is aiming to hire another 700 people to provide in-person service at Taxpayer Assistance Centers.
Of course, that doesn’t mean the process will suddenly be more efficient.
“Staff increases come with growing pains,” said Collins. “As new employees are added, they must be trained. For most jobs, the IRS does not maintain a separate cadre of instructors.”
That means veteran IRS employees have to be pulled away from their jobs to provide that training.
“In the short run, that may mean that fewer employees are assisting taxpayers, particularly experienced employees who are likely to be the most effective trainers,” Collins said.
The IRS has become a favorite target of House Republicans, who on Monday voted to dramatically cut IRS funding. They maintained that it would be used to unleash an army of thousands of IRS agents who would target middle class taxpayers by scrutinizing their tax filings too closely.
The bill, though, is likely to go nowhere in the Democratic-run Senate.