IRS Has 10 Million Unprocessed Tax Returns Owing Billions in Refunds and Paying Massive Interest

Ovidiu Dugulan /

Another sign of the Biden administrations sagging effectiveness is the understaffed and underfunded Internal Revenue Service. They are having issues with getting millions of Americans their tax refunds, and they have been in trouble for months. 

The IRS is sitting on almost 10 million unprocessed tax returns and that means they owe billions in refunds. Things will get worse because, after 45 days without a response, the agency has to pay interest on owed refunds to taxpayers. The current rate of interest is 4 percent. And then theres thissome taxpayers have already been waiting for nine months for their refund. 

Once a return is processed, the IRS has 45 days to pay out the refund. As of April 1st, the interest rate for late payments went from 3% to 4% because of the Federal Reserves benchmark rate. Because the IRS is so far behind, that 1% uptick will translate to a huge amount of money because of the massive backlog of millions of unprocessed returns. 

A Government Accountability Office report found recently that the IRS paid about $14 billion in interest over the last 7 fiscal years. But approximately one-quarter of that amount was paid in 2021 alone. The IRS paid $3.3 billion in interest that year because of the problems the agency had due to the pandemic. 

Jessica Lucas-Judy, the director of tax issues at the Government Accountability Office, said that what the IRS is facing is not a small amount of money.

Its not just the interest, but the amount of money owed in a backlog of 9.6 million unprocessed returns. The IRS has not disclosed how many of those returns were already at the 45-day mark, but they did indicate that some of the returns were received before 2022. 

Certainly, there are a massive number of returns received in 2021. Last year it was reported that many taxpayers had to wait up to nine months to receive their refund.

One of the reasons for increased interest payments is that filing extensions have been granted by President Joe Biden. Taxpayers were allowed to file late, but the refund deadline was tied to the original Tax Day. This gave the IRS less time to process a return before interest began to build up. 

For the average taxpayer in America, their refund is an important means of living, especially those on a fixed income or those with significantly low incomes. Some who are waiting for their 2020 refund told the press that because they did not have their money, they couldnt afford their basic needs of food and childcare. 

Andrea Grant, a 38-year-old woman from Wyoming, was waiting on $9,000 in a refund. She said, “I just wish that people would understand that there are people out there like me who struggle, who are single parents, and that depend on their tax returns to pay their bills and to stay afloat.

The IRS has had a budget decrease of 23% since 2010, according to the Tax Policy Center. This has caused experts to rethink how the process at the IRS works.

The National Bureau of Economic Research had researchers from the Treasury Department, the Federal Reserve Bank, and Dartmouth College look at how many returns could be pre-populated from the previous years information along with information automatically collected throughout the year. They discovered that almost half of the returns could be accurately filled out without the taxpayer having to prepare their own forms. 

Despite this information, the IRS still has workers sifting through mountains of papers trying to eke out delayed refunds and paying interest on it. Taxpayers may like the added income from the interest, but the downside is that the IRS considers that interest as taxable income.

Who is the voice that can bring greater effectiveness to this massive government agency bogged down in its own clutter?