What if the IRS Rejects Your E-filed Return? Zero May Be the Enchanted Number.

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It’s difficult to fathom why the IRS would ever recommend that a relatively small group of taxpayers put $0 somewhere. However, it’s difficult to imagine the IRS’s paper mountain.

Unusual times necessitate unusual measures. And you’ll want to pay close attention here if you’re preparing your taxes and the IRS system unexpectedly rejects your electronically filed return.

IRS

 

There is one trick that millions of taxpayers still need to learn as the April 18 filing deadline approaches.

To be sure, an e-filed return may be rejected for a variety of reasons, including if you are a victim of identity theft and someone filed a tax return using your stolen Social Security number prior to you.

However, the 2021 tax season will be unique. Is it possible that your federal income tax return for 2020 will remain stalled in an IRS bottleneck?

 

How a 2020 tax delay could be detrimental now

The IRS is still dealing with millions of unprocessed 2020 tax returns – a situation that is causing complications for some taxpayers who wish to electronically file their 2021 income tax return.

For someone who has not yet received their 2020 refund – yes, a year or so after filing the return – the prospect of running into problems filing a 2021 return is not a pleasant one.

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The last thing you want is to be rejected for an e-filed 2021 return and then forced to file a paper return — which could result in a significant delay in receiving your 2021 refund.

If you fall into this category, you will undoubtedly desire a workaround.

What is the issue? In some cases, the electronic filing system will lock you out or reject your electronically filed return simply because the IRS does not have your return on file.

“If you attempt to file electronically, the system will ask for your prior year’s adjusted gross income to verify that you are who you say you are,” Erin Collins, the national taxpayer advocate, explained in a phone interview.

As expected, a large number of taxpayers are entering their adjusted gross income from a copy of their 2020 tax return. After all, why would they refuse to do so? That is their assignment, correct?

Erin Collins, the National Taxpayer Advocate, cautioned that if you file your 2021 federal income tax return on paper, it could take six to nine months to receive a refund. The Taxpayer Advocate Service provides this information.

Except that is the incorrect course of action in these specific instances. The system will not allow an individual to proceed if their 2020 tax return has not yet been processed and they are now claiming $50,000 in adjusted gross income in 2020. Alternatively, $100,000. Alternatively, whatever.

Are you self-employed? You may be eligible for tax deductions for starting a business.

Why would the IRS reject electronically filed returns?

What is the reason? Because the IRS has not processed your return, it is unaware of the figure you are now claiming was your AGI for 2020.

“It is not in the IRS’s systems yet because it has not been processed,” Collins explained.

“As a result, taxpayers become frustrated and file their returns on paper.”

Avoid filing on paper. Filing a paper return only increases the likelihood that you will have to wait six months or more to receive your income tax refund this year. That is, once again, due to the IRS’s paper backlog.

Rather than that, consider an IRS workaround that I discussed earlier this tax season. Individuals in this category with unprocessed 2020 returns must enter 0 for their AGI.

“If your return has not yet been processed, you should enter 0 for adjusted gross income,” Collins explained. “Then you may file electronically at the moment.”

“This is a workaround,” she stated.

She noted that while the fix has received increased attention, it is critical to spread the word now for late filers.

To avoid lengthy delays, the IRS is urging taxpayers to file electronically and have refunds directly deposited. Delays in processing due to a paper backlog will result in refund delays.

As of early February, the IRS had a backlog of more than 17 million unprocessed tax returns from last year — including 10.8 million unprocessed individual returns, Collins testified before the Senate Finance Committee. This figure includes paper returns as well as some electronically filed returns that were suspended during processing, frequently due to return errors.

Some had wondered early on whether they should delay filing their 2021 federal income tax return until the 2020 was processed by the IRS.

No, the IRS stated, you are not required to wait for your 2020 return to be processed before filing your 2021 return. However, if you wish to file electronically, you must take additional steps.

“For those awaiting the processing of their 2020 tax returns, be sure to enter $0 (zero dollars) for last year’s adjusted gross income on their 2021 tax return,” the IRS advised.

More information is available at IRS.gov under “Visit Validating Your Electronically Filed Tax Return.”

Additionally, the IRS notes that those awaiting the processing of their 2020 returns will need to take a different route: “If you used the Non-Filers tool in 2021 to register for an advance Child Tax Credit payment or third Economic Impact Payment in 2021, enter $1 as your prior year AGI.”

If your 2020 return was processed, you would file electronically using your most recent Adjusted Gross Income, or AGI.

You’d locate your actual adjusted gross income, or AGI, on line 11 of your 2020 tax return.

And, yes, it can be even more perplexing for a taxpayer who owed money, saw the check was cashed, but is still unsure whether the 2020 return was processed. The fact that the check was cashed does not guarantee that the return was processed.

While it is possible to access your online account at IRS.gov, this will not always be helpful in this situation.

“You can log into your online account and check to see if your return was received,” Collins explained. “However, it will not indicate whether it was processed.”

“It is possible that your return is still sitting in the backlog, awaiting processing,” Collins explained.

Therefore, if you attempt to file electronically and are rejected by the IRS system, Collins said, there is a good chance that your return has not been processed.

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“So you should enter 0 and check to see if it works,” she advised.

Not exactly an intuitive tax tip. However, it may work for some.

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