The problem is hitting an estimated 8 million households that didn’t get the money sent directly to them, most commonly because the IRS didn’t have their correct information on file. Even though they’re eligible, they’ll now have to claim it on their 2020 tax return — and if they owe back taxes or certain other kinds of debt, the IRS is taking that out of the stimulus payment.
The issue “is a problem the law and the IRS have created,” wrote Erin M. Collins, the National Taxpayer Advocate, adding that “the rug is being pulled out from under eligible individuals with outstanding debts.”
The agency is reviewing what might be possible, a spokesman told CNN this week.
Yet people who have filed their 2020 tax returns could already have lost out on the cash — and won’t have any way to get it back.
IRS rules vs. what Congress wanted
Congress, which sent stimulus payments to millions of people last year and another round in December, intended for people who owe back taxes to still be eligible for the money.
But the situation gets complicated when a taxpayer has to claim the payment on a tax return — a kind of backstop for people the Treasury missed when sending out the money. Most people received the cash automatically, but many very low-income Americans who don’t normally file taxes could have missed out. People who have moved or changed their bank accounts recently could have also fallen through the cracks.
A spokesperson for the House Ways and Means Committee, which wrote this piece of the Covid relief bills, said lawmakers did not exclude the tax credit from debt offsets largely due to administrative difficulties associated with exempting a sole credit.
What people can do to claim their money
As of now, people are left with little recourse. But an existing process called an Offset Bypass Refund allows people experiencing economic hardship to apply for a waiver so that they can still receive their full tax refund.
But it’s not guaranteed and there’s a small window to apply: between filing your 2020 tax return and receiving the refund or tax bill.
Biden’s push to reach more people
While the IRS is likely the best suited government agency to handle sending money to millions of Americans, it’s hurting from deep budget cuts and was tasked with delivering the first round of stimulus payments at the height of the 2019 tax season when most of its employees were working from home.
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