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The IRS Delivered Economic Impact Payments In Record Time, So Why Haven’t Some Needy Families Gotten Their Money?
With Congress about to debate a second round of stimulus payments for tens of millions of people, it is important to review some lessons about who did not quickly get the first round of economic impact payments it approved last March. In a new report—Who Did Not Get the Economic Impact Payments by Mid-to-Late May, and Why?—Michael Karpman, a researcher in the Urban Institute’s Health Policy Center, and I use the Coronavirus Tracking Survey to identify some of the barriers.
Overall, the Internal Revenue Service did an impressive job distributing $267 billion to 159 million recipients in just over two months after the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
There were glitches, of course, and most were corrected rapidly. But the glitches don’t fully explain why four in ten adults, with income at or below the federal poverty level and between the ages 18 and 64, did not report receipt of payments by mid-to-late May. By comparison, 78 percent of other potentially eligible adults say that they did get payments by then.
Who got the money the fastest?
Over 81 million economic impact payments were issued in mid-April. The lucky recipients shared three characteristics:
- The IRS had already processed their 2019 or 2018 income tax return;
- They received a tax refund based on their last income tax return; and
- That refund had been directly deposited in a bank account.
If you met the first criteria but not the other two, you had to either wait for a check or enter your bank account information on the IRS website by May 13 to receive a direct deposit sooner.
What caused delays in payments?
The greatest barrier to quick payments was the inability of the IRS to get the money to many low-income people who don’t file income tax returns. Typically, they do not owe any income taxes and are not expecting money back from the IRS. Many of those households rarely interact with the IRS.
The IRS was able to connect with most retired and disabled nonfilers by tapping into information from the Social Security Administration and Department of Veterans Affairs.
Still, nearly 4 in 10 nonrecipients—and close to half of those living in poverty—will have to apply on the IRS website by October 15 to receive a payment by the end of this year. Their only other option? File an income tax return next year.
But getting on the IRS website is not so easy for many nonrecipients who need to apply online: In the survey, one in five of those nonrecipients do not have internet access at home. In many cities, public libraries and other places where people can go for free internet access remain closed due to the pandemic. And people who cannot afford access to the internet should not have to wait until year’s end, or even next spring, for their payments.
The other hurdle for speedy delivery? The IRS doesn’t have banking information for these nonrecipients, and thus the payment cannot be directly deposited into their accounts. But our survey results indicate that over half of nonrecipients living in poverty don’t have a bank account.
What can be done if there is a second round of payments this year?
The good news? The IRS now has a data base of households—including many nonfilers--who have received the CARES Act payments, plus the capacity to automatically send them payments. Outreach efforts led by state and local agencies and nonprofit organizations took off in June and can locate additional nonrecipients and help them apply.
The IRS can speed delivery to the unbanked by issuing prepaid debit cards in lieu of checks. The Treasury tried this on a limited basis in May and learned an important lesson: Prominently display the Treasury logo on the envelope rather than the obscure private vendor’s name. Otherwise, many recipients will think the mail is junk and throw it out. In addition, Congress could restrict the fees charged by card issuers, so that recipients would get the full amount of the payment wherever they use the card.
It remains impossible for households to apply for economic impact payments by mail as long as the IRS is working through a massive backlog of paper created by the pandemic. And applying online, the only option for now, still is challenging for many. My TPC colleague, Elaine Maag, suggests the IRS could set up a secure phone line—if it has the resources.
In the long run, the government needs to build a wider bridge between the agencies that deliver assistance and those households who are eligible for payments. Now, the federal government delivers various benefits to people through several distinct channels, such as the IRS for refundable tax credits, the Social Security Administration for retirement benefits, and state health and human service agencies for Medicaid and Supplemental Nutrition Assistance Program (SNAP). Coordination among federal and state governments to deliver payments to nonfilers would help, but it won’t happen in time for the next round of payments.
Still, policymakers should start developing new coordinated systems for delivering assistance quickly before the next recession or disaster strikes. Planning in advance will increase the effectiveness of future efforts to distribute payments rapidly and widely throughout the population.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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