Refunds, Taxes Owed, IRS Customer Service

April 2024

With the official tax season now over, in this piece we’ll take a look at a few insights, filing experiences and taxpayer surprises.

Unexpected Tax Surprises

Inflation, Interest and Earnings Bumps: The good news for many taxpayers was a return to more robust returns on savings and certificate of deposits (CDs) following the earnings doldrums of the prior couple of years. The primary driver was Fed rate hikes which typically leads to higher rates on savings accounts and CDs.

The Fed's war on inflation played out in a series of hikes that moved the benchmark federal-funds rate from nearly nothing in March 2022 to between 5.25% and 5.5% by July 2023. In lock-step, banks eager to lure deposits jacked up their rates and savers proved keen to respond with their dollars.

The good news was higher earnings. For some, the less than good news was a jump in taxable income…accompanied by news of additional taxes due.

Social Security Cost of Living Adjustment (COLA): A bump in the 2023 Social Security COLA was a welcomed event for retirees. Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2021 through the third quarter of 2022, Social Security beneficiaries were rewarded with an 8.7% COLA for 2023.

While welcomed, for some it triggered an unanticipated income tax increase.

Retirement Plans Required Minimum Distributions (RMDs): RMDs were generally lower in 2023. A soft market through the end of 2022 reduced net account balances requiring lessened distributions in tax year 2023. While a shrinking nest egg is not good news, it did lessen the tax bite for many.

Inadequate Withholding: One of the most common, if not the most common, reason why taxpayers end up owing money to the IRS is not having enough money taken out of their paychecks throughout the year. That's because tax withholdings are estimates that may be too much or too little depending on your income and tax status … especially if there was a change since you last filed. If wage inflation has kept your income level, even or above price inflation, or you have a major life change you may be subject to higher tax rates. Click here to learn how to avoid this annoying surprise.

Refunds

As of March of this year, the average federal income tax refund is 4.8% more than a year earlier…about $3,213. The IRS data show this to be in sharp contrast to last year when the typical refund was lower than in 2022, due to expiration of pandemic benefits.

That said, a smaller refund isn’t cause for concern since it means you got “paid” during the year rather than “loaning” the money to the IRS until tax filing time.

According to the IRS, if you/your tax preparer filed an electronic return and opted for direct deposit, you may anticipate receiving your refund within 21 days of filing…assuming no issues with your return like inaccuracies or incomplete information. 

IRS PROGRESS – SERVICE TO TAXPAYERS, COLLECTING BACK TAXES

Filing Season Report Card: The IRS announced considerable progress during 2023 to deliver improved customer service. The agency credits the Inflation Reduction Act for its support in reducing roadblocks and providing funding. Here’s a summary of improvements:

• IRS Achieved 88% Level of phone Service, Cut Call Wait Times to 3 Minutes, Answered 1 Million More Calls Than Filing Season 2023, Saved Taxpayers 1.4 Million Hours of Hold Time
• 31 Million Taxpayer Views of New and Improved “Where’s My Refund” Tool
• More than 170,000 additional taxpayers served at Taxpayer Assistance Centers

IRS Chasing Tax Scofflaws: More than a decade of budget cuts constrained adequate IRS staffing to pursue compliance efforts that are estimated at over $1 billion of unreported revenue. Conservatively, the IRS estimates hundreds of millions of dollars of unpaid taxes are in play. IRS inaction was reversed as a result of funding provided by the Inflation Reduction Act. The IRS is now taking swift and aggressive action to make up for lost time by mailing compliance alerts for failure to file a tax return at the rate of 20,000 to 40,000 letters each week. Click here for more detail on the agency’s aggressive collection campaign.

The above presentation is meant as an overview only. 
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