More than 80 million stimulus checks went out last week, mostly to people who filed federal 2018 or 2019 returns and had the Internal Revenue Service directly deposit those tax years’ refunds.
Millions more have been anxiously checking the IRS’ Get My Payment online tracking tool (guilty!) and/or their bank accounts (guilty again!) to find out just how far along their (my) COVID-19 relief payment is in the distribution system.
In many cases, people who didn’t get refunds, but are eligible for the coronavirus stimulus money are trying to speed up the delivery process by using the online tool to give the IRS their bank information.
But a lot of folks, despite filing tax returns in recent years and getting refunds, will be waiting possibly months for their money. They are individuals who don’t have bank accounts.
Massachusetts’ two U.S. Senators think the IRS needs to take steps to help out these eligible, but bank-free coronavirus payment recipients.
No direct delivery for millions: The Coronavirus Aid, Relief and Economic Security (CARES) Act authorized the payments of up to $1,200 for individuals (twice that for married couples filing jointly) and $500 for each of the taxpayers’ eligible children.
“These direct payments, while modest, are intended to be a lifeline for millions of American families, especially for the more than 10 million people who have filed for unemployment over the last two weeks,” Sens. Edward J. Markey and Elizabeth Warren said in a letter sent last week to Treasury Secretary Steven Mnuchin.
But many of those in immediate need of financial help won’t get it from the IRS any time soon since they don’t have bank accounts.
A 2017 Federal Deposit Insurance Corporation (FDIC) survey found that 14.1 million Americans don’t have a bank account. These individuals, usually referred to as the unbanked, tend to face a financial Catch-22. Bank access would make many transactions easier for them and give them more rapid access to funds, but they can’t afford to pay the fees that banks typically charge on low-balance accounts.
So while the unbanked — around 70 million American families by one count — are the most in need of a direct COVID-19 stimulus check, they will be among the last ones to actually receive it. They must wait for it to arrive as a paper check delivered by the U.S. Postal Service.
“This particular element is going to hit lower income people much more than higher income people,” Jonathan Morduch, the executive director of New York University’s Financial Access Initiative, told Time. “They really have a double whammy — their incomes are being hit, and also the mechanism to help them is going to take longer.”
COVID checks in the mail, later: Exactly how much longer a wait is the issue.
Right now, the IRS is focusing on electronic delivery of the COVID-19 economic relief payments. It isn’t expected to start mailing COVID-19 economic relief payment checks until early May.
That could mean some recipients could be waiting months for their money.
“Even if the IRS were able to meet its stated goal of issuing 5 million paper checks per week, that would mean an unacceptably long 20-week delay on payments for some taxpayers,” Markey and Warren wrote to Mnuchin.
“We encourage you to do everything in your power to address this problem immediately and ensure that taxpayers quickly receive their stimulus checks, regardless of banking status,” added the Democratic duo from the Bay State.
Domino delivery effect: In addition, the Massachusetts Senators say that failure by Treasury and the IRS to address these relief payment delivery issues could compound the coronavirus’ adverse economic effects.
All American families are likely to require more support from the federal government, most likely through additional relief payments, wrote Markey and Warren.
If the issue of delivery to those who can’t get the money via direct deposit isn’t addressed, it will undercut the goal of providing help and keeping the economy running on an at least nominal level.
Pushing for payment alternatives: Markey and Warren urged Mnuchin and the IRS to act expeditiously to get the COVID-19 payment to every eligible recipient as soon as possible.
“We encourage you to do everything in your power to address this problem immediately and ensure that taxpayers quickly receive their stimulus checks, regardless of banking status,” wrote the Senators.
But they are leaving it to Treasury and the IRS to come up with any alternative COVID-19 payment mechanism for the unbanked.
Consumer advocates and other financial and professional groups, however, have suggested for years that the IRS consider issuing refunds (and special payments like the coronavirus amounts) on prepaid debit cards.
Prior, and failed, federal debit card effort: Uncle Sam actually tried a tax refund debit card option back in 2011.
That year, the IRS launched a pilot program offering prepaid debit cards to taxpayers who may not have a bank account. The goal was to have their 2010 federal tax refunds issued to them on the cards.
Ideally, noted a 2014 Urban Institute analysis of the MyAccountCard program, such a delivery method could be beneficial. The report noted:
Electronic delivery of tax refunds onto a prepaid card would help connect these unbanked adults to the financial mainstream and would cost the government less than paper checks. The Treasury Department recently tested prepaid card features through the MyAccountCard, a direct mail pilot program offering low-income families the option of receiving their tax refund on a prepaid card. The MyAccountCard could then be used for everyday transactions, including paying bills, receiving paychecks via direct deposit, and withdrawing money from ATMs. … Connecting families to safe, reliable accounts at tax time can help them avoid costly alternative financial services and begin to build savings and assets. Offering a prepaid card, such as the MyAccountCard, at tax time can also save the government money. Electronic delivery of tax refunds costs roughly one-tenth as much as a paper check.”
But the MyAccountCard program was suspended the next year after it performed worse than originally expected.
In the end, literally, the Urban Institute found that less than one-tenth of one percent of those who were chosen to participate in the debit card program actually used their cards. Since the program cost $1.4 million, that mean it cost more than $4,000 per participant.
More acceptance of IRS involvement: But times, they are a-changing, even in the tax world.
Nineteen years ago there was Congressional push back to debit card refund delivery. Republican Ways and Means Committee members in 2011 were concerned that the debit card refund plan could lead to expanded government efforts into that they believed were best served by the private sector.
Now, many members of Congress want the IRS to take over tax services that were initiated by commercial enterprises, such as government-run direct online tax preparation.
Also, direct debit card delivery of refunds is more accepted, as more have grown accustomed over the decades with the product’s use.
The American Bar Association Section of Taxation, for example, has suggested that the IRS provide taxpayers without bank accounts coronavirus stimulus payments on no-fee debit cards.
The group commended the IRS’ online COVID-19 economic relief payment portal, but noted that among the unaddressed issues is the many individuals who:
- do not have access to the internet or assistance to claim the payment,
- might be victimized by unscrupulous tax preparers who charge high fees, thereby reducing the COVID-19 payments’ effectiveness, or
- must pay exorbitant fees imposed by check cashing services, again diluting the relief amounts’ value.
These drawbacks could be partially or completely avoided, said the tax attorneys, if the coronavirus stimulus payments to individuals without bank accounts got the money on cash cards, no-fee debit cards or existing government benefits cards.
Have you received your COVID-19 payment yet? Were you able to track it with the Get My Payment tool? Did you add your bank account info if the IRS didn’t have it? Or will you, too, have to wait for a paper check?
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