The voices of Tax Policy Center's researchers and staff
On March 21, about a week after President Trump declared a public health emergency, Treasury and the IRS extended the April 15 deadline for both federal individual income tax filing and payments to July 15.How have we spent our first-ever extended tax filing season? Has the July 15 deadline changed Americans’ behavior? Or, as has been the case historically, have people who expected refunds already filed? Are those waiting until the last minute filers with a balance due?
What can IRS data tell us about filers’ behavior?
By June 19, the IRS received about 138 million individual income tax returns, down from about 144 million at the same time last year—and this year’s filings include returns prepared solely to receive Economic Impact Payments. (An estimated 10 million Americans normally don’t have to file a federal income tax return because they earn less than the standard deduction and do not have income taxes withheld.)
The filing slowdown does seem closely linked to COVID-19 since the rate at which individual income tax returns were filed in 2020 was comparable to 2019 until March 27, right after the pandemic hit.
In a typical year, roughly 15 million people, or 10 percent of all individual filers, use paper returns. This was not the year to file by paper, as my TPC colleague Janet Holtzblatt pointed out in April. But apparently, millions did it anyway. The IRS currently faces a backlog of an estimated 11 million pieces of unopened mail, including returns as well as correspondence and other documents.
As a result, the IRS is way behind in processing income tax returns. IRS staff, like many of us, had been under stay-at-home orders since mid- to late March, and many staff have just begun to return to work at their physical locations. So far the IRS has processed about 11.4 percent fewer returns than last year at this time. And the IRS has issued nearly 11 percent fewer refunds.
Refunds are slow even for some returns that were filed electronically and with direct deposit. Some of those who e-filed in late April still are awaiting refunds from the IRS. The good news: The IRS is paying interest on delayed refunds that is far more generous than any bank: 5% compounded daily for the second quarter and 3% compounded daily starting July 1.
What do tax preparation companies say?
Intuit, which owns TurboTax, says that the IRS tax filing deadline extension shifted the timing of millions of tax filings to later in the season. According to its third-quarter investor relations call, as of May 8 a majority of their expected high-value customers with the most complex returns and those who owe the IRS, had yet to file. Intuit said this was consistent with IRS data.
So far this filing season, H&R Block has helped prepare 20 million tax returns, down from 23 million last year. During its June 16 investor relations call, Block president and CEO Jeff Jones said the firm surveyed 10,000 of their consumers who had not yet filed their tax returns. The main reason they have not filed? They have not had to. Jones concluded that “it feels like people aren't yet ready… We think the July 4 holiday is going to be kind of a wake up [call].”
What do some taxpayers say?
Fifty friends responded to a quick, informal, and unscientific survey of their tax filing behavior this season. They range in age from their 30s to the 60s, and their household incomes probably fall throughout the top half of the income distribution.
- Eleven already have filed their Form 1040s and had a balance due with their returns.
- Three friends said they had already filed a return and still expect a refund. One of those three was not able to file electronically as planned and filed a paper return in mid-March. The IRS warned him he’d have to wait 16 weeks for his refund.
- Sixteen friends not only had filed their income tax returns but had received refunds, too. I’m betting they filed electronically.
- Twenty friends had not yet filed as of June 27. Of those, two said they expected to receive a refund when they do file. Most others had balances due. One of them asked, “Why would anybody pay early?”
Treasury Secretary Steven Mnuchin recently ruled out extending the deadline again, despite some pleas to do so. Millions of Americans could spend their Independence Day holiday expressing a very specific type of patriotism: Filing their taxes. They might not have as much fun, but it’s safer than do-it-yourself fireworks.
Happy Fourth, America.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Mark Lennihan/AP Photo