The voices of Tax Policy Center's researchers and staff
The federal government’s new coronavirus payments to adults and children will provide much-needed cash to 90 percent of US households. Unfortunately, tens of millions of people who did not file federal income tax returns for 2018 or have not yet filed for 2019 are at risk of not getting the payments, authorized by the just-passed CARES Act.
But the government has a powerful, off-the-shelf way to encourage many of those households to file returns and get help paying their bills during the pandemic—the much-criticized Free File program.
The new law already calls on the IRS to inform individuals that they could qualify for the rebate and what they need to do to get it. As part of that effort, it could promote the underused and controversial Free File program. It is an easy way for low-income households with internet access to file a return—and become eligible for the payments--without having to leave their homes.
The Tax Policy Center estimates about 15 million households did not file returns in 2019, and the Joint Committee on Taxation found as many as 30 million individuals were nonfilers in 2011. Many non-filers otherwise would qualify for the financial support.
The new direct payments, called recovery rebates, are for up to $1,200 for adults and $500 per child under 17. They phase out for high-income households. The payment automatically will go to those who filed a 2019 federal income tax return. For those who have not filed for 2019, the payment would be based on their 2018 return.
This week, the Trump Administration extended the current filing deadline for tax year 2019 from April 15 to July 15. That will give people plenty of time to file without penalty, including those who ordinarily do not file. By not preparing a Form 1040, they not only will miss out on the new direct government payments, they lose the chance to claim the Earned Income Tax Credit or the Child Tax Credit.
In some cases, they even miss out on receiving tax refunds they are owed. One older study found that about 9 million people have income taxes withheld from their pay but do not file a return.
Non-filers are a diverse group. Many are not required to file. Non-filers include students, older adults living on Social Security, people on public assistance or Supplemental Security Income, and even working people whose incomes fall below the standard deduction amount of $12,000 for singles and $24,000 for couples filing jointly. Some immigrants may fear filing a government form, even if they are in the US legally. Some people, of course, don’t file as a way to evade taxes.
Getting non-filers into the system
Getting non-filers into the system is a two-step process. First, they need to be informed that they are eligible for the new payments. The IRS public outreach program should advise people to file a return this year, even if their income is below the threshold for filing. But it also could direct them to Free File.
Free File is an IRS-sponsored program that allows those with incomes of $69,000 or less to file their income tax returns electronically at no cost, using online software. The agency farmed the program out to commercial tax prep software companies such as Intuit’s TurboTax, H&R Block, and many others.
However, some commercial firms have been accused of burying the Free File information and, instead, steering website users to their paid software. Under pressure from Congress, the IRS reformed the program to make it easier for users to find.
Coronavirus has made online software especially important for low-income households this tax season. Not only are people being discouraged from leaving their homes, but many of the usual sources of taxpayer information for low-income households are shuttered. Many local IRS offices and Volunteer Income Tax Assistance (VITA) sites are closed. Storefront tax prep firms likely are short-staffed (and may not be worth the expense for many non-filers).
This new direct government payments would be a terrific opportunity for commercial software firms (and the IRS) to rebuild their Free File reputations and perform an important public service for households that could easily become eligible for an important cash payment.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Matt Rourke/AP Photo