Americans who owe money to the government could see their stimulus payments reduced or cut once they file their tax returns this year.
Some people who haven’t gotten their stimulus checks through direct deposit or a prepaid debit card in the mail may have to get them through their tax returns for 2020 by claiming a recovery rebate credit. But the Internal Revenue Service will be redirecting those payments for people with unpaid state and federal taxes, Veterans Affairs and Social Security debts, child support requirements and student loan debt, Politico reported, citing the Taxpayer Advocate Service.
The Treasury Department said that as many as 8 million households may be eligible for stimulus checks but haven’t received them yet. Of those, it’s unclear how many people would be affected by the new debt collection policy.
Even if someone received their first relief payment without issue, things are a bit different this time around.
The $900 billion coronavirus relief package signed into law in December included $600 direct payments to most Americans, half the size of the checks sent out under the $2.2 trillion CARES Act, which provided $1,200 payments to individuals who met the income threshold.
While the CARES Act shielded the IRS from redirecting payments toward debts, the latest package with the recovery rebate credit process does not, according to the Washington Post.
The rebate credit is “a tax credit against your 2020 income tax. Generally, this credit will increase the amount of your tax refund or decrease the amount of the tax you owe,” according to the IRS.
In normal years, the IRS can reduce a tax refund to pay for child support, tax debt and other liabilities, The Washington Post reported. So now that process applies to some people’s stimulus payments.
Scott Heemann told The Washington Post that he and his spouse filed their 2019 tax return in October and because it hasn’t been processed, their eligibility for another stimulus check is undetermined. Heemann said they’re $10,000 past due in tax debt.
“We are paying past years‘ taxes owed under the terms of an existing payment arrangement with the IRS,” Heemann said, according to the Washington Post. “So typically any refund we are due is applied to our outstanding tax-owed balance.”
“Given the pandemic and the millions of individuals struggling with financial issues, I believe the IRS should use its discretion to issue RRCs without offset against federal tax debts,” National Taxpayer Advocate Erin Collins said, according to Politico. “The reality is that many of the taxpayers who are most likely to be subject to offset — because they cannot afford to pay their bills and have unpaid debts — are the ones who need relief the most.”