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Expect smaller refunds and continued phone delays this tax season

Tax season 2023: The IRS will begin accepting and processing 2022 tax returns on Jan. 23

IRS employees at an Austin office in June. (Matthew Busch for The Washington Post)

In accepting the Cecil B. DeMille Award at the Golden Globes ceremony this week, Eddie Murphy shared his blueprint for success, prosperity and peace of mind.

“It’s very simple,” the actor told his entertainment industry peers: Just do three things.

No. 1: “Pay your taxes,” he said, eliciting laughter.

The others were “Mind your business” and keep Will Smith’s wife’s name out of your mouth.

The tax part cracked me up.

But, seriously, there’s nothing funny about tax season. Engaging with the IRS was hard enough even in a typical year. Then came covid-19, which led to three tax years of misery for many taxpayers and tax professionals. Pandemic-related return backlogs exposed a woefully understaffed agency hobbled by outdated technology.

But there’s reason to believe the 2023 season will be better.

The IRS has largely worked through its massive backlog of unprocessed tax returns, and Congress has given the agency a significant boost in funding, which should improve its customer service, National Taxpayer Advocate Erin M. Collins said in her annual report to Congress.

“I am cautiously optimistic that it will be better than the last two, three years,” Collins said in an interview.

IRS advocate reports big drop in backlog as GOP votes to cut funds

As you start gathering your financial documents and receipts, here are some things to expect this tax season.

Tax deadline

The IRS will start accepting and processing tax returns on Jan. 23. It expects more than 168 million individual tax returns to be filed this year.

You’ll get three extra days to file your return. Taxes are due by April 18 because the traditional April 15 deadline falls on a Saturday and the following Monday is Emancipation Day, a holiday observed in D.C.

If you expect to owe the IRS, file on time; otherwise, two penalties may apply. There’s one for filing late and one for paying late. And interest accrues on top of penalties. Even if you don’t have the money, at least file on time.

Backlog

The IRS said it has processed all 2021 paper and electronic individual returns for the 2021 tax year received before November 2022 that didn’t require error correction or further review.

“Since the close of the 2022 filing season, the IRS has made considerable progress in reducing the volume of unprocessed returns and correspondence,” Collins said. “We have begun to see light at the end of the tunnel.”

Still, challenges to customer service remain.

Collins said the IRS still has a lot of carry-over work — unprocessed returns and correspondence — from 2022 that needs to be addressed.

“The IRS needs to end the vicious cycle of paper backlogs,” she wrote in her report.

Smaller refunds

The average refund for 2022 was about $3,200, according to IRS figures.

For many taxpayers, the next one will be smaller.

The 2021 tax year was unique because there were many one-time refundable credits available, many of which were expanded as the government tried to aid struggling families during the pandemic. There were higher payments for the child tax credit; the child and dependent care credit; and the recovery rebate credit, otherwise known as a stimulus payment. The earned-income tax credit (EITC) also was expanded, especially for childless workers. Those special provisions won’t be around this tax season.

The average refund last year was about $400 higher than it was in 2021, according to IRS spokesman Eric Smith.

“Although we don’t have a prediction for what they’ll be this year, it’s reasonable to think that they will drop, at least some, perhaps returning to pre-pandemic levels,” Smith said.

Child tax credit

The American Rescue Plan of 2021 expanded the child tax credit for the 2021 tax year to $3,600 for children 5 and younger and $3,000 for those 6 through 17. This credit, which helped lift families out of poverty, will drop back to the pre-pandemic maximum of $2,000 per child under 17.

For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will get $560 in 2022.

Earned-income tax credit

The credit is up to $6,935 for taxpayers with three or more qualifying children, up from $6,728 in 2021. People claiming the EITC must wait until Feb. 28 to get their refund. By law, to prevent fraud, the IRS cannot issue refunds for people claiming the EITC or additional child tax credit (ACTC) before mid-February.

Standard deduction

For married couples filing jointly, the standard deduction increases to $25,900, up $800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction is $12,950, up $400. For heads of households, it jumps by $600 to $19,400.

Charitable deduction

The special covid-related tax provision that allowed single filers to deduct up to $300 in donations to a qualified charity (as much as $600 for married couples filing jointly) goes away. For tax year 2022, those who take a standard deduction cannot claim their charitable donations.

Paper returns

Last year, about 13 million individual taxpayers filed paper returns, Collins said.

“I do know there is a percentage of our population who don’t have the technology or don’t feel comfortable filing electronically,” she said. “If they need to file a paper return, they should file it soon.”

But if you can avoid it, don’t file a paper return, Collins recommended.

The fastest way to get your refund is to file electronically and have the IRS direct the money to a bank account. And triple-check all your information.

IRS’s toll-free phone lines

The tax agency’s record of answering calls is dismal. Last year, only about 13 percent of callers reached an IRS employee, Collins pointed out.

Tax professionals also had trouble reaching someone at the IRS. The agency answered only 16 percent of calls from tax professionals.

But the IRS says that after the August passage of the Inflation Reduction Act, it has hired more than 5,000 telephone assisters and added in-person staffers to help support taxpayers.

“While much work remains after several difficult years, we expect people to experience improvements this tax season,” said acting IRS commissioner Doug O’Donnell.

Why does the IRS need $80 billion? Just look at its cafeteria.

1099-K reporting rule delayed until 2024

The American Rescue Plan changed the reporting threshold for third-party payment processors such as PayPal, Venmo and Cash App. Starting with the 2023 tax season, the companies were supposed to report payments received for goods and services above $600 a year in an effort to capture income from gig workers and entrepreneurs with side hustles.

Under the previous rule, companies were required to submit an IRS Form 1099-K only for gross payments exceeding $20,000 and transactions totaling more than 200.

5 reasons to report your fantasy football and gig income to the IRS

Leading up to the change, there’s been a lot of concern and confusion from people who use these platforms to repay friends for a dinner or receive gift funds. To give users and companies more time to adjust, the IRS pushed the implementation of the reporting rule until next year.

So, for 2022, the existing 1099-K reporting threshold of $20,000 in payments from more than 200 transactions will apply, the agency said.

However, even if you don’t receive a 1099-K, you’re still required to report any taxable income received through these platforms on your income tax return.

Defunding the IRS

The Inflation Reduction Act signed into law last year gave the agency nearly $80 billion over the next 10 years to modernize and hire much-needed staffers to improve taxpayer services.

Republicans have falsely claimed that the money is aimed at increasing the number of audits on small-business owners and low-to-moderate-income taxpayers.

IRS has $80 billion coming. It should be spent on answering the phone.

Soon after taking over leadership in the House, Republicans passed a bill to strip $71 billion from the IRS budget. With Democrats holding a majority in the Senate, the bill is slated to fail. In this case, thank goodness for congressional gridlock.

Taking money from the IRS — the agency responsible for collecting the money that funds the government — would be an idiotic move.

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

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