The IRS is preparing for tax season. Expect some changes.

The IRS has hired at least 4,000 agents, adopted scanning technology to free agents from data entry, and is tackling a backlog of paper tax returns.

After two nightmarish tax-filing seasons, the Internal Revenue Service is racing to improve services before it begins accepting 2022 returns, usually in the last week of January.

For 2020 and 2021, taxpayers couldn’t get hold of IRS agents for help as they struggled with confusing temporary tax provisions, and many refunds were delayed for months.

The IRS has hired at least 4,000 agents, adopted more scanning technology to free agents from data entry, and is tackling a daunting backlog of paper tax returns at a pace of about one million a week. As of late October, 15 million individual and business paper returns from previous years awaited initial processing or were held up with errors or other issues, according to the Taxpayer Advocate Service, an independent arm of the IRS.

The agency’s efforts are likely to mean a better experience for some taxpayers. But with the next taxfiling season just weeks away, many filers are likely to be frustrated by lingering delays. There will also be fresh challenges as new and potentially confusing tax changes must be accounted for on 2022 tax returns.

“Eventually, new resources will fix the problems, but are we going to say on April 16, 2023, ‘Wow, that was much better than last year’? I’m not sure about that,” says Edward Renn, a partner at the international law firm Withers, who points out that IRS agents are saddled both with processing returns and manning the phones. “If you put them on the phone, the backlog doesn’t progress, and if you don’t,the phones don’t get answered.”

Last year, the IRS favored processing over manning the phones, according to metrics from the TAS. In a typical year, 80% of callers get through to an agent. In 2021, of 167 million taxpayer calls, 9% were answered. Last year, the number of calls fell by more than half to 73 million, yet the answer rate was 10%.

For the 2023 filing season, “it would be hard to do worse,” says Garrett Watson, a senior policy analyst at the Tax Foundation, who anticipates an improvement in phone service thanks to an expanding IRS staff. “But the question is, by how much?”

The IRS’s service deficiencies largely stem from the pandemic, which closed processing facilities for about three months in 2020. Tax returns piled up—so many that they sat in trailers. Meanwhile, Congress enacted temporary tax relief to offset Covid-19 hardships, triggering a plague of errors in returns.

The IRS was already struggling when the pandemic hit, due to Congress’s steady whittling away at its budget over the preceding decade. An infusion of funding under the Inflation Reduction Act, passed in August, has already helped add staff.

Trouble in 2023 is likely to center on taxpayers who file paper tax returns, amended tax returns, and returns that have errors. Taxpayers who electronically file error-free returns were spared processing delays last year, and will likely see refunds within several weeks in 2023.

But even taxpayers who want to e-file often can’t due to technical limitations, according to the TAS. For example, the IRS doesn’t accept certain forms electronically, “and sometimes accounting software won’t allow you to file an amended return,” says Michael Kramarz, director of federal tax resolution at Kaufman Rossin.

Tax Changes to Expect in 2023

Tax experts also foresee challenges for taxpayers impacted by changed rules for 2022 returns. Notably, the child tax credit, which was increased and made available to more taxpayers under the American Rescue Plan on 2020 and 2021 taxes, will return to prepandemic limits, which means many refunds could be smaller on 2022 tax returns.

“Consumers don’t study the tax code—they’re going to be confused when they file this year and see their refunds are different,” says Kathy Pickering, chief tax officer at H&R Block.

The maximum credit on 2022 returns will be $2,000 for each child 16 and under. For 2021, the maximum credit was $3,600 and the maximum age for some of the credit was 17. Families must earn at least $2,500 to be eligible for part of the credit; the full amount can be claimed when incomes reach $23,000 for singles and $29,000 for couples. It begins phasing out when annual income reaches $200,000 for single filers and $400,000 for joint filers.

Other tax perks returning to 2019 levels are the child and dependent care credit and the earned income tax credit. The maximum child and dependent care credit returns to $2,100 on 2022 returns, down from $8,000 in 2021. The earned income tax credit amount depends on income level and number of children. Eligible couples with no children who qualified for about a $1,500 credit in 2021 will qualify for $500 on 2022 taxes, according to the IRS.

Another benefit phased out on 2022 taxes is the ability to claim a charitable deduction of up to $300 for singles or $600 for couples even if you claim the standard deduction. This was possible on 2021 tax returns, but old rules are back in effect: If you claim the standard deduction, you don’t get to itemize deductions.

Read the full article on Barron’s.

Michael Kramarz is a Director, Impuestos Director at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.