Here’s What Happens at the IRS After You File Your Taxes

IRS | Taxes | Waiting for a refund | June 19, 2024

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Jonathan Amy, a 74-year-old semiretired neurologist in McLean, Va., is still waiting for a nearly $10,000 refund on his 2020 taxes. His accountant e-filed his return on extension in September 2021 and got an acceptance notification from the Internal Revenue Service.

 
Then nothing. 

Finally last month, Mr. Amy contacted the Taxpayer Advocate Service, an independent watchdog within the IRS, and a representative told him that his return was under review, and to keep waiting. Though he was frustrated at how long it has been, he said that “the fact that I’ve now heard it’s under review feels like progress.”

The IRS says it delivers nine out of 10 tax refunds within 21 days, a time frame that hasn’t changed for e-filed returns in two decades. Tax professionals report that this tax season most clients are getting refunds for e-filed returns in five to 14 days. For taxpayers filing on paper, refunds can take four weeks or more, the IRS says.

To the millions of taxpayers awaiting refunds, it can be puzzling that the IRS still needs weeks, months or more to crunch the numbers and transfer the money—when most of the process is automated. 

A refund that appears in your bank account an hour after you e-file might sound appealing. But it would mean that the IRS didn’t adequately check for people who either cheat or innocently overstate the amount they should get for a refund, said Mark Iwry, a former senior adviser to the Secretary of the Treasury. 

“To maintain respect for the voluntary tax system, there has to be a sufficient level of confidence among the taxpaying public that the tax authority is appropriately checking.

Processing time has improved this year, according to the IRS. As of March 10, the number of returns filed, 63 million, is virtually flat. Yet 2% more returns were processed than at this time last year. And 8.5% more refunds have been issued.

Despite this, during the last two years, tens of millions of taxpayers experienced refund delays of 10 months or more, said Erin Collins, who serves as the national taxpayer advocate for the Taxpayer Advocate Service. The IRS faced huge paper backlogs, and temporary pandemic-related items on tax returns tripped up computers and required human intervention. 

Here’s a look at what happens when you send your taxes to the IRS, why some refunds take longer than others and what to do if you find yourself waiting a long time.

First, the IRS has to accept your return

After you sign the authorization and click submit, the IRS runs a quick check to determine whether to accept the return for processing. This takes anywhere from a few minutes to up to 48 hours in peak tax season. 

During that time, algorithms confirm that there are no red flags about the basic legitimacy of the return, that the Social Security numbers and names match, for example. Acceptance doesn’t mean your refund is approved, just that it has passed the first hurdle. 

“Now you’re in limbo. You’re hanging out there while the IRS is reviewing your return,” says Mark Jaeger, vice president of tax operations at TaxAct.

Checking the return

Once the IRS accepts a return, its computers check it for math errors, clerical mistakes and suspected identity theft or fraud. The IRS deliberately keeps the specifics of these checks to itself, said Mr. Iwry. 

When errors are detected, many can be fixed quickly by the IRS without contacting the taxpayer. In such cases, the returns and refunds get adjusted automatically, all without a human touch. The IRS sends taxpayers a notice of the adjustment, and those who disagree have 60 days to respond. IRS computers spit out 17 million math-error notices last tax season, many relating to pandemic tax items.

Then, the IRS checks the return for accuracy by, for example, comparing the numbers you entered with the data from banks and employers. “If there’s a mismatch, it goes tilt and that can delay the refund,” said Mr. Iwry. 

In cases where the IRS needs to reach out to taxpayers by letter to ask for additional information, such as a schedule for itemized deductions, resolution can take more than 120 days. Responding promptly can speed up your refund.

The computers will check whether the taxpayer owes money to the federal government or someone else for federal tax, student loan debt or child support. These get enforced through the refund process.

How payments are processed

To shave several days off processing time, choose the direct deposit option on Form 1040 and double-check your bank routing and account numbers. If you file married jointly, your refund can be deposited directly into U.S. bank accounts that are in your own name, your spouse’s name, or both if it’s a joint account. 

If you file on paper, there’s a keypunching step whereby an IRS employee manually keys in your return information. Another step that comes at the end of the process increases processing time: The IRS has to send an electronic authorization to the Treasury’s Bureau of the Fiscal Service to print and mail a paper check. 

Where is my refund?

You can check the status of your refund online at IRS.gov/refunds or with the IRS2Go app 24 hours after e-filing your return or four weeks after surface-mailing it. You’ll need to know your Social Security number or taxpayer identification number, your filing status and the exact amount of your expected refund. Information is updated daily.

If your refund is delayed, take comfort in the silver lining: The IRS will pay interest on late refunds in most cases, typically after 45 days, using a complex formula, including the current interest rate of 7%. Watch out for a Form 1099-INT because the interest payments are taxable.

Credit goes to Ashlea Ebeling, published March 20, 2023 in the Wall Street Journal.

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This Week’s Author, Belinda Stickle