Tax return backlog is still ‘crushing the IRS’ — and taxpayers — as pileup exceeds 21 million, agency watchdog reports

The IRS backlog of tax returns has swelled over the past year, despite efforts to clear the pileup, according to an agency watchdog.

There were 21.3 million unprocessed paper returns as of May 31, up from 20 million one year prior, the Taxpayer Advocate Service shared in its mid-year report to Congress.

“Unfortunately, at this point the backlog is still crushing the IRS, its employees and, most importantly, taxpayers,” wrote National Taxpayer Advocate Erin Collins, who leads the independent organization within the IRS.

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“That the backlog continues to grow is deeply concerning, primarily because millions of taxpayers have been waiting six months or more to receive their refunds,” Collins added.

While more than 90% of taxpayers filed returns electronically last year, roughly 17 million sent paper filings, contributing to the backlog.

Over the past year, refund delays for some paper-filed returns have exceeded six months, with many waiting 10 months or more, according to the report.

The report also highlights “missed opportunities” for the agency over the past year after identifying issues with paper returns.

“Had the IRS taken steps a year ago to reassign current employees to processing functions, it could have reduced the inventory backlog carried into this filing season and accelerated the payment of refunds to millions of taxpayers,” Collins wrote.

Over the past 12 months, the agency may have boosted efficiency with new scanning technology, or moved faster to use part of the $1.5 billion funding from the American Rescue Plan of 2021 to hire new employees, the report said.

CNBC has reached out to the IRS for comment.

The agency in March shared plans to hire 10,000 workers, starting with 5,000 new employees. However, the IRS hadn’t yet achieved half of the 5,000-worker headcount in May, according to Ken Corbin, the agency’s chief taxpayer experience officer.

“We remain focused on doing everything possible to expedite processing of these tax returns, and we continue to add more people to this effort as our hiring efforts continue this summer,” IRS Commissioner Chuck Rettig said in a press release this week.

As of June 10, the IRS had processed around 4.5 million of the more than 4.7 million individual paper returns from 2021, and the agency expects to complete error-free individual filings from 2021 this week.