“At the end of the day, a typical taxpayer cares most about receiving his or her refund timely,” National Taxpayer Advocate Eric Collins wrote in a report to Congress last week. “These processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many.”
According to Collins — an IRS official charged with serving as the “voice of the taxpayer” within the agency — more than 90% of individual income taxpayers file their returns digitally. Before COVID-19, the IRS managed to process paper returns within four to six weeks. Over the past year, however, the delay has surpassed six months.
At the end of May, 21.3 million paper tax returns had not been processed.
“The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds,” Collins wrote. “Unfortunately, at this point the backlog is still crushing the IRS, its employees, and most importantly, taxpayers. As such, the agency is continuing to explore additional processing strategies.”
Collins, however, noted that the IRS “missed opportunities” to preemptively address the backlog — such as implementing barcoding or optical character recognition. “The IRS’s paper processing delays were evident more than a year ago, and the IRS could have addressed them more aggressively at that time,” she wrote.
Last month, Penn Wharton Budget Model noted that payments of non withheld individual income taxes in April 2022 surpassed $522 billion — much higher than the $243 billion collected in May 2021, the month in which tax filings were due last year. Because “the surge in taxes due at filing came entirely from taxpayers who paid by electronic funds transfer,” the group concluded that the majority of the higher tax payments derived from households which, unlike businesses, tend to file their records electronically once per year at tax season. Growth of income derived from assets was likely a leading factor in the higher tax burden.
Last year, the Biden administration considered a plan to tax unrealized capital gains — returns from assets not yet sold. As Treasury Secretary Janet Yellen argued in October, “it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation, until they’re realized, and often they’re unrealized in the death benefit from a so-called step up of basis.” Rep. Pramila Jayapal (D-WA) and Sen. Elizabeth Warren (D-MA) pressed for tax policies that target wealthy individuals, such as Tesla and SpaceX CEO Elon Musk.
A recent survey from Greenback Expat Tax Services found that one in four Americans currently living abroad are weighing a renouncement of their citizenship due to the United States’ tax burden.
“Because the majority of the world’s nations use a system of residence-based taxation, most US expats are required to pay taxes in their host country,” Greenback explained. “Despite this, most also have to pay taxes to the US government on the same income due to the US’s practice of citizenship-based taxation.”