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On March 27th, 2020, President Trump Signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) into law.  The Act brings 2-trillion dollars of aid to individuals and businesses impacted by the COVID-19 virus. One provision of the law, Economic Impact Payments (AKA stimulus checks, rebate checks, and relief checks), is designed to place cash in the hands of Americans quickly.   This article will discuss why many of these payments may take much longer to disburse than initially intended.  But - before we dig into tardy payments, let's review the basics of the relief/stimulus initiative.

Economic Impact Payments

Economic impact payments are advance payment of a refundable credit (meaning you get the credit, even if you owe no tax) on your 2020 income tax return.  Pretty much everyone in the U.S. who; 1) has a valid social security number, 2) is not a dependent, and 3) has income below a certain threshold qualifies.  These advance payments take place in 2020. In 2021, those who did not receive the advance (or who were paid too little in 2020) will receive it (or the difference) on their 2020 tax return.  And, if you received too much in advance, guess what? As of this moment, you get to keep it! You do not have to pay it back. 

Payment Amount

The economic impact payment is $1,200 for eligible individuals (including those married filing separately) and $2,400 for married couples who filed taxes jointly on their most recent tax return (2018 or 2019).  The Act also provides an additional $500 for each qualifying dependent under the age of 17 claimed on that return. There is no limit to the number of dependents that qualify.

Income Limits

Individuals will receive the entire $1,200 (plus $500 per dependent) if their adjusted gross income (your total income with a few modifications) is equal to or less than $75,000.  Those who filed as Head of Household with AGIs of $125,000 or less will also receive $1,200. The impact payment for married couples earning $150,000 or less will be the full $2,400.  

Once income surpasses these thresholds, the payment gets reduced by $5.00 for each $100 AGI exceeds it.  To calculate the amount of your stimulus check, try the Tax Foundation's CARES Act Rebate Calculator under “How Much of a Rebate will I Receive?” This site also provides sound information related to the payment.

How will the IRS Send Your Payment?

If you received a refund on the most recent tax return and had the funds directly deposited, the IRS will electronically deposit your relief/stimulus check into that account.  If you did not provide bank information with your most recently filed tax return, the IRS will mail a check to the address reported on that return.

Note: IRS officials have announced the creation of an online tool to add/update one's banking information and to check the status of their payment.  On 4-10-20, they announced that a portal to check the status of your payment will be available the week of 4-14-20.  The ability to add/update one's banking information will be added the following week.  For more information, Click Here.

Individuals who receive Social Security Retirement or Social Security Disability but have not filed a 2018 or 2019 tax return will also receive a payment.  These funds will get deposited into the account used to receive benefits.

Those who have not filed tax returns for 2018 or 2019 should file a 2019 return before payments are processed.  Otherwise, they may have to wait and complete a 2020 tax return to claim their Economic Impact Payment. Individuals who do not file returns because they have too little income and non-filers receiving veterans' disability and survivor benefits can use the newly-created Non-Filer's Tool to enter the information necessary to receive their payment.  As of 4-10-20, the IRS has stressed that individuals receiving social security benefits or social security disability should NOT use this tool.

Note: Whether the IRS will continue to process impact payments for 2019 returns received after disbursement begins remains unclear. Check with the IRS for more information.  

The Wait Begins - When will I Receive my Economic Impact Payment? 

The best response, like most things tax, is “it depends.” The answer depends on which distribution group you are in:

Those who file returns and directly deposited their refunds: Treasury representatives have stated that these individuals can expect their checks in mid-to-late April.  This distribution may be the only one that occurs in a timely fashion. Update: These payments should be received the week of 4/13/20. 

Those who filed returns but did not provide banking information: These individuals will receive physical checks.  Printing will begin several weeks after the impact payments directly deposited.  The IRS estimates that one hundred million relief checks will be printed and mailed at a rate of five million per week. That's twenty weeks of printing and mailing checks and a long time to wait for some who need the funds. 

Those who have not filed tax returns but receive Social Security benefits: Here's the great unknown.  The IRS will use the 1099-SA forms (which report an individual's social security & disability income to the IRS) to send relief payments to non-filing social security recipients.  

Using Form 1099-SA may seem logical to those writing legislation at break-neck speed.  Still, Congress should have checked with the IRS before finalizing the Act.  This failure may have created a daunting challenge for an IRS currently understaffed due to COVID-19.

The 1099-SA Challenge:  The process of determining which social security recipients have not filed tax returns is a bit more complicated than many realize.  The mission of the IRS is to collect tax and administer tax regulation - a task completed using antiquated technology designed for this singular purpose.  There are roughly 66 million Americans who receive social security benefits of one form or another. To determine which social security recipients should collect an economic impact payment, the IRS must match each one of these 66 million 1099-SA's against every tax return filed for 2018 and 2019.  Then, they must filter out 1099-SA recipients who have not filed a tax return for either year. This task may be beyond the capability of IRS systems without some retooling.

Then, there's the dependent issue.  Individuals claimed as dependents do not qualify for economic impact payments.  So, the IRS must also match and remove social security recipients claimed as dependents from the payment stack before payment processing can start.  

Third, there's the question of banking information.  The IRS has announced that these payments will deliver payments in the same manner many receive benefits – by direct deposit.  But, does the IRS have the bank account and routing numbers of social security recipients?  Probably not, at least not now. The Social Security Administration makes these payments, not the IRS.  How will the IRS obtain and import banking data? It may be simpler to provide the social security numbers of nonfilers to the SSA and have them deliver impact payments.  

The final challenge involves the updating of transcripts.  The IRS uses Wage and Income Transcripts to match the income reported on individual tax returns to earnings information provided by third parties.  This transcript database is the tool most likely used to perform the matching discussed above.  Many years, these transcripts are not finalized until late spring or early summer. If 1099-SA information is not on the transcripts, processing the payments of non-filing social security recipients may not be possible without a workaround.

The Bottom Line: I hope I am wrong, but it seems likely that only those who have filed returns and directly-deposit their refunds are in luck – a little relief is on its way.  Everyone else may have to wait for aid to arrive.  

Summary and Invite

Thank you for reading our article.  We hope it has helped you to understand the IRS Economic Impact Payments and the potential delay in processing.  While you are on our website, please feel free to browse our articles, resources, and courses.  If there are any topics you would like to learn more about, please let us know.

All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.

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