IRS expects faster refunds in 2024 for paperless filers

Jul 31, 2023

The IRS will allow taxpayers to file every major tax form online, the agency announced Wednesday, and will digitize its gargantuan paper catalogue by 2025, dramatically increasing its customer service capabilities and hastening refunds by four weeks to millions of taxpayers.

The long-sought improvements, enabled by an influx of funding in President Biden’s landmark Inflation Reduction Act, mean taxpayers will be able to complete complex tax paperwork online or upload related documents directly to their IRS accounts instead of mailing hard copies to the agency.

It takes the IRS a fraction of the time to process digital tax files, enabling revenue agents to swiftly — and more accurately — issue refunds. Tax officials for years have urged taxpayers to file returns electronically, hoping to avoid assigning employees the tedious task of inputting lines of data by hand into the agency’s decrepit computer system.

By the 2025 tax season, the IRS said, it will immediately digitize paperwork submitted by mail or fax, allowing optical scanners to harvest taxpayer data and upload it directly to IRS accounts.

“This ‘Paperless Processing’ initiative is the key that unlocks other customer service improvements,” Treasury Secretary Janet L. Yellen is expected to declare in a speech Wednesday, according to an early copy of her remarks obtained by The Washington Post.

The tax agency estimates 94 percent of individual taxpayers will no longer need to send mail to the IRS once the program begins in January.

The paperless project is part of a slew of customer service improvements that IRS Commissioner Daniel Werfel has prioritized since taking office in March. Agency leaders immediately tapped nearly $1 billion in new funding to hire legions of customer support staff for the 2023 tax season, the IRS’s best year in recent memory.

In 2024, the tax agency is set to debut a pilot program that allows taxpayers to file digital returns free. Most digital filing currently happens through software or websites operated by tax-prep companies that charge certain users for the service or collect personal data for Google and social media platforms.

The paper reduction expected from the upgrades announced Wednesday could save the IRS tens of millions of dollars each year, officials said. The agency spends $40 million annually to store billions of taxpayer documents.

The Inflation Reduction Act, passed in 2022, authorized an additional $80 billion over 10 years for the IRS to improve tax enforcement on high-income earners and major corporations, and improve the agency’s customer service and technology systems. Roughly $20 billion was shaved off that amount earlier this year as part of a deal between the White House and House Republicans to avoid a government default.

But the remainder still will be the largest funding influx for the IRS, long beleaguered by budget cuts and staffing shortages, in generations. It’s embarked on a spending binge to improve customer service, while saving some funds for enforcement in later years.

In March, the IRS obtained new scanning technology to more quickly and accurately process returns. It continues a large-scale hiring drive, planning to add roughly 20,000 employees over the next two years to fill roles in customer service and tax enforcement for high-income earners, according to Werfel’s strategic operating plan.

Those investments have yielded progress in the short term. The agency answered 87 percent of customer phone calls — compared with a 10 to 15 percent answer rate in 2022 — according to the Treasury Department, and eliminated its backlog of 2 million unprocessed individual tax returns.