Millions of frustrated taxpayers still waiting on last year's refund as tax season begins

Tax filing season began this week, but millions of taxpayers are still waiting for last year’s refunds.

Alysha Holliday, 30, of North Olmstead, Ohio, is one of them. She filed an amended return in April, after Congress changed the rules to make thousands of dollars in unemployment benefits tax-free.

Nine months later, the IRS is still processing her refund.

“You have to call at seven in the morning or you will not be able to talk with someone. I have called at 7:30 a.m., and the automated line has said that they are too busy and to call the next business day,” she said.

Holliday is caught in the enormous bottleneck at the IRS.

Challenges such as processing the federal stimulus checks and distributing the monthly child tax credit payments have put excessive pressure on the limited amount of workers handling the large volume of work, experts said. Typically, the IRS receives 35 million calls during tax season. Last year, it got 119 million.

In fiscal year 2021, there were 81,600 employees at the agency, according to an IRS annual progress report, including 10,500 seasonal and temporary workers. That’s less than the number of permanent employees at the agency in fiscal year 2010. In an interview with CNBC, Treasury Deputy Secretary, Wally Adeyemo said the IRS needs more resources.

“Today the IRS has as many employees as they had in 1970, while the U.S. population has grown by 60 percent,” he said. “This is because we failed to fund the IRS adequately.”

Adeyemo said he hopes Congress will approve more money for the IRS this year. President Joe Biden’s signature Build Back Better plan included $80 billion to modernize the agency and increase enforcement. However, the bill has been sidelined in the Senate after Democrats failed to agree on the broader package.

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Holliday said she is frustrated and skeptical that she will ever receive her money. She has documented every time she has called the IRS, sometimes waiting more than an hour and a half to speak with someone. She has also taken screenshots of the status of her return, which she shared with CNBC.

Holliday said she is supposed to receive $2,210, enough for a down payment on a second car. The mother of two said just having one car in the household has been a strain on their daily lives. Her wife, Katie, usually takes the car to go to work, while Holliday, an insurance sales rep, works from home.

“If we need anything, I need to go places. I have to take her, drive her 45 minutes to work, 45 minutes back and then drive back to pick her up from work,” said Holliday. “It’s been just nuts.”

The National Taxpayer Advocate estimates the IRS backlog includes 9.8 million individual returns with errors and 2.8 million business returns. There are 2.3 million amended returns, like Holliday’s.

Barry Melancon, president and CEO of the American Institute of CPAs, stressed that taxpayers should be patient because it could take multiple months before the IRS addresses an amended tax return, which will most likely be manually processed.

“An amended tax return is about correcting an error or being responsive to a request by the IRS or sometimes things change,” said Melancon. “So, it really depends on what the ‘it’ is as to how long it will take.”

Meanwhile, Holliday said she is in limbo this tax year, unsure whether to file her return or wait until she receives last year’s refund.

“It’s really hard to place blame on something because, you know, I do have a heart,” she said. But, “it’s not fair to the people who are doing what they need to do, by the timeframe that needs to be done. And I feel like we’re being penalized for it.”