How the 2022 Tax Filing Season Was Different
Posted on July 4, 2022.
More than two years into the pandemic, the tax world has yet to recover.
Many taxpayers opted to or were forced to extend their returns this year to buy more time for preparation.
Taxpayers and preparers alike were hoping for a return to normalcy when they filed their taxes in 2022 after consecutive years of pandemic-related disruptions. What they got instead was a continuation of pandemic relief tax programs and challenges without the extended deadlines of the prior two years.
“It was the worst tax season ever,” says Michele Cagan, a certified public accountant who has more than 20 years of tax preparation experience. “It felt worse this year because it feels like the 2020 tax season never ended.”
So far, IRS statistics indicate improvements over this time last year in the processing of returns and distribution of refunds. As of April 15, the IRS reports receiving more than 122 million returns, nearly 119 million of which have been processed – marking a nearly 20% increase over this time last year. The distribution of refunds and the amount paid to taxpayers is also higher this year, with the most recent statistics noting the average refund sits at $3,181, up from $2,939 at this time last year.
While the data paints a mostly positive picture thus far, preparers working daily with the IRS and alongside taxpayers describe an entirely different experience.
Those two years held numerous fast-paced legislative and executive actions aimed at relief, many of which came with significant tax implications. Economic impact payments are perhaps the most obvious example, but measures like advance child tax credits, the paycheck protection program and expanded unemployment benefits added complexity for those on the receiving end of that help come Tax Day.
Despite speculation, the deadline extensions ceased in 2022.
“It was the culmination of the last two or three years, all combined in a very short period of time to wrap up all of the uncertainty, the complexity, the tax law changes and the IRS delays,” says Jan Lewis, chair of the AICPA Tax Executive Committee and tax partner at Haddox Reid Eubank Betts PLLC in Mississippi.
The foundation for this tax crisis had, in many ways, already been laid before the pandemic began.
Starting in 2017, taxpayers and professionals were already facing a major tax law shakeup with the passage of the Tax Cuts and Jobs Act, which made sweeping changes to the tax code, such as nearly doubling the standard deduction and eliminating personal exemptions. Just as the dust from the 2017 overhaul was settling, the pandemic hit.
Meanwhile, the IRS was already facing an aging workforce and underfunding – problems that only snowballed amid the pandemic and led to a backlog of 24 million unprocessed tax returns at the start of the 2022 filing season.
When pandemic-related relief measures combined with the tax implications of cryptocurrency trades, tax professionals’ staffing shortages, and various other recent changes to the federal and state tax code, such as the treatment of S Corporations, it was the perfect storm.
Preparers say these complications seemed to touch every tax return that came across their desks.
“We’re really trying to dissect whether it was worse this year or it just felt worse this year,” Donna Laubscher, a certified public accountant and partner at Henry and Horne in Arizona, says about the 2022 filing season. “All of the returns seemed harder. It seemed like there were no easy returns. Returns that would have been easy in the past weren’t this year because they had advance child tax credit payments or were trying to track down their economic impact payment from March.”
All of this translates to fewer resources, more costly returns and more frustration for taxpayers at a time when the IRS anticipates 165 million people to file this year – the largest number ever.
Many taxpayers opted to or were forced to extend their returns this year to buy more time for preparation. Others struggled to find tax preparation help altogether as tax professionals report feeling increasingly overwhelmed and overburdened by recently added layers of complexity in the tax law.
“Anyone who asked me for help after March 1, I turned them down even if they agreed to go on extension. I don’t have the capacity to do more,” Cagan says. “I had to raise my prices because every tax return is taking more time or requires more research. And I’m thinking about not taking on any new clients next year. It takes a toll on your emotional health and physical health.”
Looking to next year, normalcy still feels out of reach for some. Tax preparers say they plan to reduce hours and reject clients. Others plan to leave the industry entirely in a trend that only further exacerbates the lack of support and resources available to taxpayers. Meanwhile, though Tax Day has passed, troubles at the IRS are far from over.
“The IRS says they’re going to be caught up by the end of this year, but we don’t believe that,” Laubscher says. “There’s no way.”