Stimulus payments being cut for some with government debts

Congress had shielded previous payments from being diverted for these kinds of things, with the exception of unpaid child support, but moved the goalposts in late December when it approved another round of stimulus payments of up to $ 600 per person.

Most of these payments have been made to households directly, through direct deposits or checks, and their money cannot be diverted.

But millions of others who haven’t received direct payments will have to file tax returns this year and apply for an RRC (Recovery Rebate Credit) in order to receive the stimulus money. According to a recent estimate by the Treasury Department, there are around 8 million households in this boat, and a good chunk of them may not get credit because Congress instructed the IRS to instead steer the money to cover various debts, said Erin Collins, attorney of the national taxpayer.

This is a policy reversal from last March when the first round of stimulus payments ended with explicit instructions against diverting money to cover outstanding debts other than child benefit.

The reason for the change is not yet known.

Collins, who reported the problem on a blog Thursday, said the IRS could fix it, at least for those who have federal tax debts. She proposed that the agency bypass the reimbursement reductions for those suffering from economic difficulties.

“Given the pandemic and the millions of people struggling with financial problems, I believe the IRS should issue RRCs in its absolute discretion without settling federal tax liabilities,” Collins said. “The reality is that many of the taxpayers most likely to be hit by the compensation – because they cannot afford to pay their bills and have unpaid debts – need some relief most urgently.”

Typically, taxpayers have to apply for such relief, but Collins suggested it could be granted automatically to those who owe federal taxes and have an income that is less than 250 percent of federal poverty.

“After speaking with the IRS, I understood that they have been looking into this issue and are looking for ways to exercise their discretion to help vulnerable taxpayers, considering the limitations of their IT systems, resource issues and a fast approaching filing start be considered season, “she wrote.

“While I recognize these inherent challenges, I strongly encourage the IRS to take the initiative to provide relief to taxpayers affected by the pandemic.”

An IRS spokesman did not immediately respond to a POLITICO request for comment.

When the previous round of stimulus payments malfunctioned, lawmakers stepped in and pressured the IRS to fix the issues.

For example, following complaints from Capitol Hill, the Treasury Department and IRS agreed to make automatic payments to veterans who receive VA benefits and typically do not file tax returns. You were originally directed to file tax returns or enter basic personal information on an IRS website in order to receive payments.

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