Dealing With a U.S. Tax Refund Delay? Here Are the Reasons for the Hold-Up

It’s a fact: People despise waiting. In 2019, the stationery supply company BIC asked people how long they were willing to wait before becoming frustrated. Respondents reported losing their patience after just 16 seconds of waiting for a web page to load, 18 seconds of looking for a pen, and 25 seconds of waiting for a traffic light to change.

Unfortunately, the wait time for a tax refund wasn’t included in the BIC study. Like it or not, most people wait around three weeks for a tax refund, but errors, oversights, identity theft, or claiming certain refundable credits can lead to even longer delays. We wanted to uncover the main reasons for a delayed tax refund and what you can do to avoid screaming “where’s my refund?” next year.

Reason #1: Your Tax Submission is Missing Information or Has Errors

Missing or incorrect information is one of the most common causes of delayed tax refunds. Be sure to double-check Social Security numbers and make sure your name (and the name of your spouse and dependents) matches the name on file with the Social Security Administration.

If you file Form 1065 or Form 1120-S for your business, ensure the partner/shareholder names and Social Security numbers shown on the K-1s are correct, and the company name matches the name on file with the IRS (Internal Revenue Service).

Failing to report all income can also cause delays, so make sure you include all income from W-2s, K-1s, 1099s, etc.

If at all possible, have your refund direct deposited. The IRS says they issue more than 9 out of 10 direct deposited refunds in less than 21 days. Whether you file your return electronically or on paper, direct depositing your refund is faster than waiting for a paper check. Just make sure you double-check the bank routing number and account number. If you enter the wrong account number and your refund gets deposited into someone else’s account, you’ll need to work with the bank to recover your money.

Reason #2: You Filed a Paper Tax Return

You heard it here first: File electronically if you can. The IRS strongly encourages all taxpayers to e-file tax returns versus a paper tax return. The tax software you use to e-file your tax returns helps avoid mistakes from incorrect names or Social Security numbers, as the system will usually reject any e-filed tax returns with those issues.

Because there is no waiting on mail or processing of a paper tax return, you’ll usually receive your tax refund much faster.

Taxpayers filing paper returns have had particularly long waits during the COVID-19 pandemic. As of September 2021, the IRS still had a backlog of around 10 million paper returns to process for the 2020 tax year. That backlog was created by the IRS’s need to temporarily scale back operations during the pandemic and the agency’s involvement in issuing stimulus checks and advanced payments of the child tax credit.

If you must file a paper return, be sure to attach copies of any W-2s or 1099s that include federal tax withholding. Failure to attach those forms to a paper return will result in processing delays.

If you have a tax preparer like an accountant or bookkeeper to process tax returns for you they should have filed electronically. This will also cut down on the processing time because it takes the manual processing of your taxes off your plate so you receive refunds faster.

Reason #3: Your Estimated Payments Applied to the Wrong Account

Once, I worked with a client who set up a single-member LLC for her consulting business and obtained a Tax ID number for the business. All smart moves, except when she made her quarterly estimated payments, she used the Tax ID number for her business instead of her Social Security number. The IRS had over $100,000 of her estimated tax payments, but because the payments had been applied to the business’ Tax ID instead of her SSN, they were sending her notices telling her she owed more money!

Fortunately, the issue was quickly resolved with a letter to the IRS explaining the situation, but it did cause some frustration and delay.

If your business is an S-Corp, LLC, partnership, or sole proprietorship, income from the business “flows through” to your individual income tax return, Form 1040. When you make estimated payments, they should be applied toward your SSN, not the business’s Tax ID.

If payments were applied incorrectly, the IRS would send a notice indicating the number of estimated payments reported on your return does not match their records.

Reason #4: You May Be Claiming Certain Refundable Tax Credits

If you claim the Earned Income Tax Credit or the Additional Child Tax Credit on your tax return, your tax refund may take longer. The Protecting Americans from Tax Hikes (PATH) Act requires the IRS to hold refunds on any tax returns claiming these refunds until mid-February. This change was designed to give the IRS more time to help detect and prevent fraud on every tax return processed each year.

Both of these tax credits are refundable, meaning taxpayers can receive tax refunds above the amount of tax they paid into the system. While they are designed to help low-income taxpayers, the refundable nature of these tax credits makes them more prone to abuse and fraud. The PATH Act mandates that no refunds for overpayments will be issued before February 15 if you claim the Earned Income Tax Credit or the Additional Child Tax Credit.

Reason #5: You May Be Flagged for Identity Theft

Identity theft has been a significant (and growing) problem over the last several years. The Internal Revenue Service is stepping up efforts to combat identity theft and tax refund fraud. Unfortunately, those additional safeguards may mean some delays processing your tax return, even for legitimate refunds.

If you have been a victim of identity theft and tried to e-file your tax return, you may get an error message stating a return has already been filed using your Social Security Number. Double-check the number to make sure it wasn’t entered incorrectly. If not, you’ll have to file a paper return and attach an Identity Theft Affidavit, Form 14039. Unfortunately, your tax return and refund may take months to process. While processing paper returns typically takes longer, sorting out identity theft extends that timeline even more.

Taxpayers impacted by identity theft in the prior year will receive an Identity Protection PIN (IP PIN). This is a six-digit number that must be included on your return to e-file this year. If you paper file your return and your IP PIN is missing or incorrect, the IRS will delay processing your return until they can confirm it actually came from you.

Can’t Afford to Wait for Your Tax Refund?

If you really don’t want to wait for a tax refund, you may be able to adjust your withholding or reduce your fourth-quarter estimated tax payment for 2021. If you can come up with a close estimate of your tax liability now, reducing your withholding or estimated payment will keep more money in your pocket now, so you’ll have a smaller expected refund later.

If the IRS doesn’t issue your refund within 45 days of accepting your return, they owe you interest for each additional day. The clock starts ticking on the April 15th deadline or the date you filed, whichever is later. If you are eligible for interest, the IRS will automatically add any interest it owes you to your tax refund. Just keep in mind that interest is taxable income for you on next year’s return.

Despite delays due to refundable tax credits and identity theft, the Internal Revenue Service says most tax refunds will still be issued in under 21 days. While some say a watched pot never boils, you can always check the refund status using the IRS’s Where’s My Refund Tool? You can also track your refund status on the IRS2Go mobile app.

This post was updated in November 2021.

Reviewed for accuracy by Janet Berry-Johnson, CPA.