Millions of Americans are still waiting for their first and second stimulus payments.
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Still waiting for your stimulus check aka economic impact payment(s)? Owe taxes? You might not see a dime. What? Wasn’t the money supposed to come through when you filed your 2020 tax return this spring? That was what the Internal Revenue Service was saying all last year, but now, based on a retroactive law change in the year-end spending package, the rules have changed: Outstanding stimulus payment(s) may be offset for back taxes. That’s bad news for Americans struggling financially because of the coronavirus pandemic who were counting on stimulus money to help pay for basic needs.
Help might be on the way. Taxpayer Advocate Erin Collins says that the IRS is looking into a fix. “The IRS is exploring ways to exercise its discretion to help vulnerable taxpayers, taking into account the limitations of its IT systems, resource issues, and a rapidly approaching start to the filing season,” Collins says in a blog post for the Taxpayer Advocate Service, an independent voice at the IRS which fights to solve taxpayer problems. There’s an obscure method called the Offset Bypass Refund process that allows taxpayers experiencing economic hardship to request that the IRS distribute a tax refund anyway despite tax debts, and gives the IRS discretion to do so. This process could be automated.
There isn’t much time. Filing season for 2020 tax year returns opens February 15, 2021. The due date for returns is April 15, 2021.
The Taxpayer Advocate says the law change isn’t fair. Those who got full stimulus payments, despite having outstanding debts, did not have their payments subject to offset (except for past-due child support). Those who haven’t received full stimulus payments yet and have outstanding debts will get a reduced credit or none at all on their 2020 tax returns due April 15, 2021.
“[T]he rug is being pulled out from under eligible individuals with outstanding debts,” says Collins. “Financially struggling taxpayers who were entitled to receive the full amount of the EIP [economic impact payment] last year but did not have effectively been harmed once. It is unfair to harm some of these taxpayers a second time by seizing some, or all, of their stimulus payments.”
Many low-income Americans rely on tax refunds to pay for basic needs. The average tax refund was $2,535 for the 2019 tax year.
The Internal Revenue Service has delivered more than 300 million stimulus payments to Americans in two rounds, yet there are still millions of Americans waiting for some or all of their economic impact payments. The first round of payments authorized under the CARES Act in March was worth up to $1,200 per adult and up to $500 per child, while the second round of payments authorized in December was worth up to $600 per adult and child.
Meanwhile President Joe Biden is trying to get bipartisan backing for his plan to disperse a third round of stimulus money of up to $1,400 per adult and child as part of a $1.9 trillion coronavirus relief package. This money might come with further income limitations, down from the income limitations on the first two rounds: $75,000 for individuals and $150,000 for joint filers (the payments totally phase out, meaning you’ll get nothing, once you hit $87,000 as a single filer or $174,000 for joint filers).
Collins recommends three alternatives to offsetting stimulus payments against debts, including creating automated procedures to waive offsets. One option would limit this to taxpayers with incomes under 250 percent of the Federal Poverty Level, aiming to help the neediest.