Why Tax Refund Delays Due to Identity Theft Are Getting Worse

Arnia
4 Min Read

Many taxpayers are experiencing long delays in receiving their federal income tax refunds due to identity theft. Some are waiting nearly two years. This problem is causing financial hardships, especially for those who rely on their refunds for essential expenses.

Growing Problem

Rising Delays

The IRS is struggling to resolve identity theft cases quickly. Lower-income families, who depend on important tax credits, are especially affected. These families often find themselves in financial trouble because someone else filed a fraudulent return using their personal information.

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IRS Response

When the IRS gets multiple returns for the same person, it stops the legitimate return to investigate. This is necessary to find the rightful taxpayer but causes long delays. The IRS’s recent report shows these delays now take over 22 months on average.

Impact on Families

Financial Struggles

These delays hit low-income families the hardest. Many of them rely on refunds from credits like the Earned Income Tax Credit (EITC), which can be up to $7,000. Without timely refunds, they struggle to pay for rent, groceries, and other basic needs. As of April, the IRS had about 500,000 unresolved identity theft cases.

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Criticism and Calls for Action

National Taxpayer Advocate Erin Collins called the delays “unconscionable” and stressed the need for the IRS to prioritize these cases. She noted that many affected taxpayers have incomes at or below 250% of the federal poverty level, making timely refunds crucial.

IRS Initiatives

Improvement Efforts

The IRS acknowledges the backlog and is working to improve. They are increasing training and allocating more resources to handle identity theft cases. The IRS is also working with other groups to prevent identity theft. Thanks to funding from the Inflation Reduction Act, the IRS has tripled its closure rate of identity theft cases since 2020.

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Phone Service Improvements

The IRS has improved its phone service, answering more calls than before. However, many taxpayers still experience long wait times, especially for issues related to identity theft and tax refund delays.

Employee Retention Credit

ERC Delays

The IRS also paused processing the Employee Retention Credit (ERC) due to fraud. They are now resuming processing for lower-risk claims, but legitimate businesses are still facing delays. The IRS aims to stop improper claims while ensuring eligible taxpayers get their payments.

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The ongoing delays in tax refund processing due to identity theft are a serious issue affecting many taxpayers. While the IRS is taking steps to address the problem, much work remains to be done to ensure timely and efficient service.

What is causing the tax refund delays?

Identity theft is causing long delays in tax refunds as the IRS investigates fraudulent returns.

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How long are the delays?

Some taxpayers are waiting nearly two years to receive their refunds.

Who is most affected by these delays?

Low-income families, who rely on important tax credits, are hit the hardest.

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What is the IRS doing to fix the delays?

The IRS is increasing training, allocating more resources, and working with other groups to prevent identity theft. They have also improved their phone service and are resuming processing for lower-risk ERC claims.

How many identity theft cases are unresolved?

As of April, there were about 500,000 unresolved identity theft cases at the IRS.

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By Arnia
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A Certified Public Accountant specializing in personal finance and taxation. Arnia engaging writing style and deep understanding of tax codes make her articles a must-read for individuals seeking to maximize their tax savings.
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