Millions of Americans are still waiting to receive stimulus payments — and many of these payments might never come.
Last year’s CARES Act, which authorized the initial round of stimulus payments, prohibited the Internal Revenue Service from retaining money except when needed to satisfy child support debts, noted Erin Collins, the National Taxpayer Advocate.
But another, subsequent law allows the IRS to hold some stimulus payments not yet received from the second round made in January 2021 to satisfy a wider range of debts, she said in a Jan. 28 statement.
Along with child support, those additional debts can include unpaid student loans and some federal and state back taxes.
This means stimulus paymentsstill owed to people with outstanding debts could be held or “offset” by the IRS, creating hardships and effectively treating taxpayers differently, depending on when they receivedor were supposed to receive payments, Collins said.
In short, people who got advance stimulus payments already weren’t at risk of having their payments reduced for debts other than unpaid child support. But those who are waiting to claim stimulus money upon filing their upcoming tax returns could find their payments reduced or entirely offset by other debts.
An IRS spokesman didn’t immediately respond to requests for comment from The Arizona Republic.
The later legislation, the Consolidated Appropriations Act of 2021, protected the second round ofstimulus money, including past-due child support, but only if it was paid out in advance, Collins added.
For people who didn’t get these payments and were planning to claim them on their 2020 federal tax returns, the IRS can hold the money to satisfy the wider range of debts.
A part of the Internal Revenue Code, Section 6402, generally allows the IRS to reduce or offset a taxpayer’s refund to satisfy past-due child support, unpaid student loans and certain other federal and state liabilities.
But Collins, the head of the National Taxpayer Advocate service, which is a watchdog division of the IRS, called it “unfair” to harm struggling taxpayers by seizing some, or all, of their stimulus payments.
It’s also possible that federal tax balances for some people could be inaccurate on the IRS’ books,given that the agency is still behind in processing 2019 returns, she added. “The IRS may end up offsetting refunds to satisfy federal tax debts that no longer exist,” Collins said.
The IRS issued roughly 160 million stimulus payments during the initial round, in 2020, followed by 147 million in January, Collins said.
First-round payments were worth up to $1,200 per eligible adult ($2,400 per married couple) and up to $500 for each qualifying child, with payments phasing out for people with relatively high income. Second-round payments were worth up to $600 per eligible adult and qualifying child.
Nearly 3.5 million households in Arizona received an average of $1,699 from the first round, above the national average of $1,676, the IRS said. It hasn’t yet released average-payment data from the second round.
Among possible remedies, struggling taxpayers may request that the IRS issue stimulus money under what’s called the “offset bypass refund” process. The IRS has the discretion to disburse some or all of a held-up refund in this manner, Collins said.
In addition, an executive order issued by President Biden Jan. 22 could provide help. It requires federal agencies to “identify actions they can take within existing authorities” to provide relief.
The Treasury Department has vowed to work to reach households who didn’t receive payments, and the IRS has explored ways to help vulnerable taxpayers by minimizing offsets against federal tax debts,Collins said.
“Taking a taxpayer’s (stimulus money) and applying it to repay a tax debt is punitive and makes little economic sense in this context,” she said.
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