Cuts to The IRS Workforce Will Delay Refunds Families Desperately Need
As 190 million Americans start to file their taxes, families across the nation are looking forward to their refunds. With rising costs squeezing middle- and lower-income households alike, many families are counting the days until their refunds hit their bank accounts. This year, however, the administration’s cuts to the IRS workforce and new policy changes increase the challenge of delivering the refunds that families count on every year.
For many households, a tax refund is the single biggest check a family receives all year, often equivalent to six weeks of take-home pay. In a typical year, over 60 percent of American households get refunds from the IRS. People get refunds if too much money was withheld from their paychecks, if their income or family circumstances changed, and if they are eligible for deductions and credits, including refundable tax credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).
For families living paycheck to paycheck, a refund can determine whether they can take a child to the doctor, repair a leaky roof, or fix a car needed to get to work. Research consistently shows that families across the country, from small towns to big cities, rely on refunds for making significant purchases, affording household expenses, paying credit card bills, and seeking health care. Families, many of whom may find it difficult to save throughout the year, also try to save some of their refunds after paying down debt and making immediate purchases.
Refunds make the biggest difference for families struggling most to make ends meet. Families with low incomes are more likely to file early, anticipate larger refunds, and spend their refunds more quickly, often in the same week or month. Last year, of the more than one in three families who filed early—by the end of February—about 70 percent received a refund, averaging $3,400. These refunds add up: the EITC and CTC lift over 8 million people out of poverty every year and provide financial support to another 17 million.
Filing season is a tremendous endeavor for the IRS–with about 160 million individual returns to process and 118 million refunds to issue, an issue affecting even 1-2 percent of filers can mean leaving millions of families waiting with bills to pay. Despite the critical nature of these payments, the administration and Congress are asking the IRS to undertake this sprint with 25 percent fewer staff to do the work.
This filing season, the agency faces a drastically reduced workforce, multiyear funding clawed back, further budget cuts by Congress, and the loss of senior leadership. (The IRS has cycled through six departed agency heads in the past year.) While the independent government oversight body for the IRS called last filing season a success, it has expressed concerns about what is ahead for the agency. IRS.
In the best of circumstances, this would be a hard year. The U.S. Department of the Treasury and the IRS are racing to implement the sweeping legislative changes enacted a mere six months ago. At the same time, the IRS is rolling out novel policies, such as a new rule pursuant to a presidential executive order that taxpayers requesting paper checks must now provide banking direct deposit information or a valid exception, or else have their refund delayed. While intended to modernize the system, new hurdles often fall hardest on those with the fewest resources to navigate them.
The IRS has proved itself time and time again, keeping the American economy afloat with stimulus checks and other relief, while pulling off its filing season duties during the depth of the pandemic. But if we truly value the critical mission of funding the government and delivering relief to millions of families every year, we must invest in policies that deliver much-needed cash to families, such as expanding the Child Tax Credit to the 19 million children the law currently leaves behind, and make long-term, stable investments in the people and infrastructure at the IRS to deliver them. Successfully delivering refunds to families shouldn’t be a hope; it should be a guarantee.
Alice Lin, Visiting Fellow, Georgetown Center on Poverty and Inequality