IRS Update

IRS vows better service this filing season.

This isn’t that difficult a promise to make, given that the 2021 and 2022 tax filing seasons were absolute nightmares, with refunds delayed for months on end, dismal telephone service, and lengthy delays on processing of paper returns and returns claiming COVID-related tax breaks.

The agency’s recent hiring spree will help.

It hired 5,000 customer service operators to answer phones. Last year, only 13% of callers reached a live person. This very low level of service was due in part to a near-record number of callers asking about COVID credits, other COVID-related tax law changes, delayed refunds and suspected identity theft.

Treasury Secretary Janet Yellen vowed to increase IRS’s phone service to 85% and cut in half a caller’s wait time on hold.

Is this too optimistic? It’s too soon to tell. We are, however, hearing anecdotal evidence from tax pros about shorter wait times on the agency’s Practitioner Priority Service phone line. More operators to answer phones is one reason. Another is due to IRS’s efforts to weed out robodialers and autodialers on the PPS line. A speech recognition system now requires callers to repeat phrases before being transferred to an operator. Also enabling a smoother filing season: No new, late-year tax changes from Congress. IRS didn’t have to quickly revise tax forms, retrain employees on new tax law or rejigger its computer systems to account for retroactive changes.

Another thing that will make this filing season a bit easier than first thought: IRS’s decision to delay a change to the 1099-K reporting rules.

In 2021, Congress enacted a law requiring third-party settlement networks, such as PayPal, Amazon and Square, to send Form 1099-Ks to payees who are paid over $600 a year for goods or services. This reporting threshold, which is much lower than in prior years, was slated to kick in for 1099-Ks for 2022, which meant that more people than ever would have gotten 1099-K forms that they’d use when filling out their 2022 1040s. This would have included, for example, someone who sold tickets to a sporting event or concert on StubHub for far more than cost, or people selling valuable toys on eBay.

The new rules will now kick in for 2023 1099-K forms sent out in 2024.

1099-Ks are still required to be sent this year to payees with over 200 transactions or who were paid more than $20,000 in 2022. Note that even if you don’t get a 1099-K for a sale of goods or services through a website or app, you’re still taxed on any gain.

Many people are facing a somber shock when filing 2022 returns this year:

Lower refunds or maybe even a tax bill, when compared with the recent past. The main culprit is the end of COVID tax breaks, which expired after 2021. Among the lapsed COVID-related breaks: The higher and fully refundable child credit. The higher earned income credit for workers without children. Stimulus payments. The $300 or $600 charitable contribution deduction for people who don’t itemize on Schedule A. Plus the larger child and dependent care credit for working parents.