The problem is affecting approximately 8 million households that were not sent money directly, most commonly because the IRS did not have the correct information on file. Even though they are eligible, they will now have to claim it on their 2020 tax return, and if they owe back taxes or certain other types of debt, the IRS will remove it from the stimulus payment.
The problem “is a problem that the law and the IRS have created,” wrote National Taxpayer Advocate Erin M. Collins, adding that “the rug is being pulled from people who are not eligible and have outstanding debts.”
The agency is reviewing what might be possible, a spokesperson told CNN this week.
However, people who have filed their 2020 tax returns may have already lost the cash and will have no way of getting it back.
IRS Rules Versus What Congress Wanted
Congress, which sent stimulus payments to millions of people last year and another round in December, aimed to make people who owe back taxes still eligible for the money.
But the situation gets complicated when a taxpayer has to claim the payment on a tax return, a kind of endorsement for the people that the Treasury did not pass when sending the money. Most people received the cash automatically, but many very low-income Americans who do not normally file taxes may have been lost. People who recently moved or changed their bank accounts might also have been lost.
A spokesperson for the House Ways and Means Committee, which drafted this part of the Covid relief bills, said lawmakers did not exclude the tax credit from debt offsets largely due to administrative difficulties. associated with the exemption of a single credit.
What can people do to claim their money
From now on, people are left with few resources. But an existing process called Compensation Bypass Refund allows people experiencing financial hardship to apply for an exemption so they can still receive their full tax refund.
But it is not guaranteed and there is a small window to apply: between filing your 2020 tax return and receiving the tax refund or invoice.
Biden’s drive to reach more people
While the IRS is probably the best-suited government agency to handle sending money to millions of Americans, it is suffering from deep budget cuts and tasked with delivering the first round of stimulus payments at the height of the season. tax of 2019, when most of your employees were working from home.