The IRS is having unexpected problems getting stimulus checks out to millions of people, despite months to prepare for this second round.
It wasn’t surprising to see the Internal Revenue Service (IRS) deal with so many issues as it began distributing $1,200 stimulus checks last April. The IRS had to rush to set up a system and get checks out fast to millions of Americans. However, despite a system being in place and months to prepare for the second round of checks, the IRS is again having major problems.
Checks for an estimated 13 million Americans are delayed and in some cases, some who qualify for the economic impact payment will not get a stimulus check.
“I thought it would be smoother because they had a lot more experience,” said Bob Probasco, a CPA and head of a tax clinic at Texas A&M University of Law.
Probasco has followed the IRS’s bumpy road to distributing stimulus checks in the first round, and now, he is surprised to see them on a similarly bumpy path.
“There was one big problem that surprised me because we thought it had been solved but it did not,” said Probasco. “The one that jumps to mind is the problem of a return that has been file before, that they are using for this information for, which the refund was not sent to their personal account but to a tax return preparer.”
Essentially, the IRS is again having an issue with the stimulus check money being sent to the wrong accounts. This is mostly for taxpayers who had returns done by companies like H&R Block or Turbo Tax, since these companies usually set up temporary bank accounts to get their clients a refund fast and stimulus checks are again going to those temporary accounts. Then, getting sent back to the IRS, and then, usually, getting mailed as a check.
“They eventually solved it for the first one. It took a lot of effort, but they solved it,” said Probasco. “Why did it happen again?”
The IRS has not provided an answer to that question, only guidance that payments are being returned and the agency is working to re-issue payment to either correct accounts or via checks.
Another, and new issue this round, is with stimulus checks getting mailed versus being direct deposited. Probasco explained that is because of the wording of the latest stimulus package.
In the CARES Act, the $1,200 stimulus checks were based on either someone’s 2018 or 2019 tax returns. That was essentially two chances for someone to have bank account information for the IRS to distribute the checks into. However, this latest stimulus package only allows the $600 payment to be based on someone’s 2019 tax returns.
Two major problems with that include the IRS has yet to process 7 million tax returns from 2019, mostly mailed in returns. Also, if you are someone who didn’t get a refund for 2019, then you likely didn’t need to provide bank account information to the IRS. Therefore, the agency no longer has it and will mail you a check. Lastly, the IRS had a roughly two-week window to get all the money out and did not set up a new portal to allow people to provide their bank account information for the latest stimulus check distribution, resulting in more people getting a paper check instead of a direct deposit this time.
One other issue, with no known reason why it is happening, is some people are checking the Get My Payment’ feature on the IRS website and they are getting the error saying “Payment Status Not Available.” The IRS has issued guidance stating anyone who gets this error will not be getting a check in the mail or a direct deposit, so they will have to file for the Economic Impact Payment on their 2020 tax return. Even further, for anyone who has not received their checks by January 15 or a payment directed deposited by then, it is likely they will also have to file a tax return for the payment.
“If they have not mailed you a check by that date, you are going to have to get it by requesting it on your tax return for 2020,” added Probasco.
What may delay some from filing for the $600 Economic Impact Payment, even if they need it now and are not getting it distributed via direct deposit or a mailed check, is the lingering question of a possible $2,000 stimulus check. It has not commented on what it would do if a $2,000 stimulus check is approved soon, something President-elect Joe Biden hinted he was eager to see during last week’s appointments for his administration’s economic team. The Biden administration will have the power to make this happen, with Democrats holding the majority in the House and the Senate when he takes office.
"The problem of a third stimulus check is something that they need to give careful thought to,” said Probasco. "People are going to be out here wondering, ‘should I wait a week or two in hope that I can do this as one big thing or is it better for me to go ahead and do it now?’”
Experts like Probasco recommend the next round not be rushed with a short two-week deadline seen this time and that the IRS or Congress issues guidance as soon as possible. Until then, he recommends if you need the $600 now, file now. You can always amend a return later if it will be necessary to claim the $2,000 stimulus check, should that measure pass.