Late to the Game: Analyzing the Reasons Why So Many Americans Still Haven't Filed Their Taxes

With the April 18th deadline finally behind us, most Americans have already filed their tax returns, and the majority of tax offices have officially closed for the year. However, an overwhelming number of people are still scrambling to file their taxes, or worse… they aren’t. According to the IRS, as of April 2, 2023, there were still over 30 million tax returns that had not been filed. By April 18th, the needle hadn't moved much, and the IRS reported that there were over 7 million fewer returns filed in 2023 than in 2022 on that date. So why are so many Americans still procrastinating on their taxes?

One of the biggest reasons that people haven't filed their taxes yet is that many Americans are still feeling the effects of the pandemic. As people try to recover from the disruption to their lives and finances, it may have become more difficult to gather the necessary information to file their taxes. Some may also be overwhelmed by the growing complexity of the tax code, particularly if they have had changes in their financial situation due to the pandemic, such as a change in income, a job loss, or started receiving government benefits. These changes can complicate the tax filing process. Other reasons for delay may include getting married or divorced or starting a new business, which comes with a new set of rules the taxpayer may not be familiar with.

Another reason for the delay is that there may be confusion around all of the recent tax law changes. There were several credits that were reduced or eliminated from 2021 to 2022, causing a drastic reduction in refund amounts compared to the last few years. For example, the American Rescue Plan Act (ARPA) temporarily enlarged the Child Tax Credit to $3,000 per child for children ages 6 to 17 and to $3,600 for children under the age of 6 for 2021. But for the tax year 2022, the credit returned to $2,000 per child and only applies to children age 16 or younger.

Moreover, the IRS made significant changes to the W-4 form in 2020. The new W-4 form was designed to be more accurate and streamlined than the previous version, no longer using allowances to determine withholding. Instead, it asks for more detailed information about income, deductions, and tax credits to calculate a personalized withholding amount. Unfortunately, many taxpayers may be unsure of how to determine this information or may be unaware of how these changes affect their tax situation. This has had an ongoing impact on employed taxpayers since employers have only been required to begin using the new form for new hires and employees who wanted to adjust their withholding. However, most payroll processing software, as well as the IRS, has already started applying this new way of calculating payroll taxes to all paychecks across the board, leaving those who have not completed the new form or those who may have not filled it out correctly with gaps in their withholdings. These gaps can cause a lower refund or a higher balance than expected on 2022 tax returns. Due to these reasons, some people may be avoiding filing their taxes because they owe money to the IRS and are worried about how they will pay.

Finally, some people have not filed because they are still waiting for their previously filed tax returns to be processed. The IRS reported that as of April 22, 2023, they still had a backlog of over 3.9 million unprocessed individual tax returns. It’s a common misconception that you should wait until your prior year returns are processed before filing your current return. However, the IRS has repeatedly stated that taxpayers don’t need to wait for their previous returns to be fully processed to file the current year's return and recommends that taxpayers file their current year tax return as soon as they have all of the necessary documents and information to do so.

If you are one of the millions of Americans who have not yet filed their tax return, it's important to note that not filing taxes can result in penalties and interest charges, which can add up quickly. It's always better to file your taxes, even if you can't pay the full amount owed, since most people are able to work out a payment plan with the IRS. If you're feeling overwhelmed or confused by the recent tax changes or your own changing tax situation, consider seeking the help of a tax professional.

Queen Tax & Financial Services is a boutique tax and accounting firm that specializes in helping individuals and small businesses navigate the tax filing process. With our years of expertise and consultative approach, we can help you understand the complexities of the tax system and ensure that your tax return is filed accurately. If you're unsure about how to fill out the new W-4 form or want to ensure that you're withholding the correct amount of taxes, our “Paycheck Checkup” service can help clarify your tax situation, identify your current deduction and tax credit amounts, and provide insight on exactly what to enter on your W-4. We can also help you set up a payment plan with the IRS and get any late filing penalties that may have been assessed waived. Contact Queen Tax & Financial Services today to schedule a consultation and take the first step towards financial peace of mind.