How zero is the magic number for e-filing some tax returns

It is hard to imagine why the IRS would ever give a tax tip this season that suggests that a relatively small group of taxpayers should put $0 anywhere. But, frankly, it's hard to imagine the paper pileup at the IRS.

Odd times call for odd measures. And you'll want to pay attention here, if you're doing your taxes and suddenly, the IRS system rejects your e-filed return.

It's confusing. It doesn't seem logical at first. But it's a trick that millions of taxpayers still need to know as we edge closer to the April 18 filing deadline.

To be sure, an e-filed return can be rejected for a variety of reasons, including if you're a victim of identity theft and someone has fraudulently filed a tax return ahead of you using your stolen Social Security number.

But the 2021 tax season has its own quirk. Is it possible that your 2020 federal income tax return remains stuck in an IRS logjam?

For someone who has not received their 2020 refund yet -- yes, a year or so after filing the return -- it's not a pleasant thought to imagine that you'd run into snags filing a 2021 return.
For someone who has not received their 2020 refund yet -- yes, a year or so after filing the return -- it's not a pleasant thought to imagine that you'd run into snags filing a 2021 return.

How a 2020 tax delay can hurt now

A year later, the IRS continues to deal with a massive inventory of millions of unprocessed returns — and that's an issue that's triggering problems for some taxpayers who want to electronically file a 2021 income tax return.

For someone who has not received their 2020 refund yet — yes, a year or so after filing the return — it's not a pleasant thought to imagine that you'd run into snags filing a 2021 return.

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The last thing you want to do is be rejected for an e-filed 2021 return and then be stuck filing a paper return — which could trigger an extraordinary delay of the 2021 refund.

If you're in this group, you definitely want a workaround.

The problem? The e-filing system is going to lock you out or reject your electronically filed return in some cases just because the IRS doesn't have your return on file.

"If you try and file electronically, the system asks what your adjusted gross income is for the prior year, trying to validate you are who you say you are," Erin Collins, the national taxpayer advocate, told me in a phone interview.

Not surprisingly, a lot of taxpayers are putting their adjusted gross income from a copy of their 2020 tax return. After all, why wouldn't they do that? That's what they're being asked to do, right?

Erin Collins, the National Taxpayer Advocate, cautioned that realistically it could take six months to nine months for a refund, if you file your 2021 federal income tax return by paper.
Erin Collins, the National Taxpayer Advocate, cautioned that realistically it could take six months to nine months for a refund, if you file your 2021 federal income tax return by paper.

Except it's the wrong thing to do in these specific cases. The system won't let someone go forward if their 2020 tax return has not yet been processed and they're now claiming they had $50,000 in adjusted gross income in 2020. Or $100,000. Or whatever.

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Why would IRS reject e-filed returns?

The reason? The IRS hasn't processed your return so it doesn't see the number that you're now claiming was your adjusted gross income, or AGI, for 2020.

"The IRS doesn't have it in their systems yet because it hasn't been processed," Collins said.

"And so taxpayers are getting frustrated and then filing those returns by paper."

Don't file by paper. Doing so only means that you're likely to wait possibly six months or more to get an income tax refund this year. Again, that's because the IRS is dealing with a backlog of paper.

Instead, try an IRS workaround that I reported earlier this tax season. People in this group with unprocessed 2020 returns need to enter 0 for that AGI.

"If your return was not yet processed, you enter 0 in the adjusted gross income," Collins said. "Then you can currently file electronically."

"This is a fix," she said.

She noted that the fix has been getting more publicity but it's still important to get the word out now for late filers.

The IRS is urging taxpayers to file electronically and have refunds directly deposited to avoid long delays. Processing delays due to a paper backlog will translate into refund delays.

The IRS had a backlog of more than 17 million unprocessed tax returns from last year as of early February — including 10.8 million unprocessed individual returns, according to Senate Finance Committee testimony by Collins. That figure includes both paper returns and some electronically filed returns that had been suspended during processing, often due to mistakes on the return.

The IRS put this $0 tip out early in the filing season for those who have unprocessed returns. Many people probably didn't read about it because they had other things to do, like maybe going to work or taking care of their children.

Some had wondered early on if they should wait to file 2021 federal income tax return until the 2020 moved through the IRS pipeline.

No, the IRS said, you do not have to wait to have your 2020 return processed before you file the 2021 return. But you must take some extra steps if you want to file electronically.

"For those waiting on their 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year's AGI on the 2021 tax return," the IRS said.

You can find more details at IRS.gov by going to "Visit Validating Your Electronically Filed Tax Return."

The IRS also notes that some who are waiting on a 2020 return to be processed will need to take another 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'd follow the normal steps and use your AGI from your most recent tax return when you file electronically.

You'd go to a copy of your 2020 tax return and find your actual adjusted gross income or AGI on line 11 of the Form 1040.

And, yes, things can be even more confusing for a taxpayer who owed money, saw that the check cashed but still doesn't know if the 2020 return was processed. Just because the check was cashed doesn't mean the return was processed.

It is possible to look at your online account at IRS.gov but that won't always help in this case.

"You can go into the online account and it will show whether the return was received," Collins said. "But it won't show if it was processed.

"Your return may still be sitting there in that backlog waiting to be processed,"

So if you're trying to electronically file and it's being rejected by the IRS system, Collins said, there's a high likelihood that your return has not been processed.

"So you should enter 0 and see if it goes through," she said.

Not exactly a tax tip that one would call intuitive. But it just might work for many.

Contact Susan Tompor via stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: If IRS rejects e-filed 2021 tax return, there's an unusual fix

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