Tax refund delays are happening at the worst time. Here's why.

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Millions of Americans have been hurting financially ever since the COVID-19 pandemic hit home, and many are desperate to get their hands on any amount of extra income, especially as lawmakers debate a second stimulus check. But unfortunately, one once-reliable source of cash is taking longer to reach Americans' bank accounts this year. We're talking about tax refunds, and IRS delays could not have come at a more inconvenient time.

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THE IRS SAYS CORONAVIRUS ECONOMIC IMPACT PAYMENTS CAN BE SEIZED FOR THIS REASON

What’s taking so long?

The IRS received an estimated 136.5 million individual tax returns as of June 12, but the agency has only processed 124.6 million of that batch. What gives?

Part of the problem boils down to how those tax returns were filed. Nearly 124 million of those received by the IRS came in electronically. The remaining paper returns, however, are subject to a major hold-up.

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Paper returns must be manually examined and entered into IRS computers for processing, but with so many IRS workers doing their jobs remotely due to the pandemic, there are fewer agents available to physically wade through those tax documents. And while IRS employees have been returning to physical offices in phases, the agency still isn't operating at full in-person capacity, which means paper returns in particular will likely remain subject to processing delays for months.

This isn’t the year to file on paper

Earlier this year, the IRS extended 2020's tax-filing deadline to July 15 to give Americans more time to get their returns in order in light of the pandemic. With that deadline now being less than a month away, many Americans will no doubt be rushing to complete their taxes in the coming weeks, and those who have yet to submit a return should really consider doing so electronically.

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Not only do electronic returns take less time to process than paper returns, but they also have a substantially lower error rate — and that itself could be crucial to avoiding refund-processing delays. And speaking of refunds, the average refund check distributed by the IRS so far this year is $2,767. That's more than twice the amount individuals were entitled to in the first round of stimulus checks that went out under the CARES Act. It's also a sum that desperate Americans will no doubt want to get their hands on sooner rather than later.

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In fact, in addition to filing taxes electronically, Americans are urged to sign up to receive their refunds via direct deposit. Doing so will help ensure that that money arrives faster. And at a time when some people may be truly struggling to make ends meet, that's a really big deal.

At the same time, those who have already filed a tax return on paper and are still awaiting a refund should not file a second return electronically. Unfortunately, the best thing to do in that situation is to sit tight and wait for the IRS to play catch-up. Thankfully, the agency does seem to be moving in that direction, and once it gets through its backlog, it may start churning out refunds in short order.

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