It has been months since Americans started to experience the economic effects of the pandemic. Now, with the government gearing up to possibly write even more stimulus checks, many Americans still find themselves trapped under tax debt. This begs the question, does tax debt affect your stimulus eligibility?
After all, tax debt is the result of being delinquent with payments to the federal government. If the IRS can normally garnish your wages, what’s stopping them from doing the same to your stimulus check?
Thankfully, the CARES Act specifies that the IRS cannot seize stimulus checks as compensation for tax debt. Nevertheless, there are other instances where your stimulus check can be taken away from you.
Who Is and Is Not Eligible?
Before explaining the instances that your stimulus check can be taken from you, here is a refresher/ clarification on who is and isn’t eligible.
Who Does Qualify?
According to the IRS, U.S. citizens and U.S. resident aliens will receive stimulus checks if they:
- Married couples filing jointly
- Are not a dependent of another taxpayer
- Have a work-eligible Social Security number
Additionally, their adjusted gross income does not exceed:
- $150,000 for married couples filing joint returns
- $112,500 for heads of household filers and
- $75,000 for all other eligible individuals
Who Does Not Qualify?
You will be disqualified from an Economic Impact Payment if your adjusted gross income exceeds:
- $198,000 if your filing status was married filing jointly
- $136,500 for the head of household and
- $99,000 for all other eligible individuals
For more information on Economic Impact Payments, you can refer to the IRS’s official website.
Instances Where You Can Lose Your Stimulus Check
While the IRS cannot take your stimulus check to compensate for your tax debt, there are instances where they and other entities can relinquish you of your stimulus check.
If you are behind on child support, the federal government can take money from your stimulus check.
Specified in the CARES Act, stimulus payments can be legally seized by the Treasury Offset Program to offset past-due child support. Even if you are experiencing financial hardship, delinquent child support will supersede your eligibility for a stimulus check.
For those whose spouse owes child support, you can file an injured spouse form. This form will allow you to keep the portion of the stimulus check that doesn’t belong to your spouse.
Overdrawn Bank Account
The bank may decide to take a portion or all of your stimulus payment to compensate for what you owe them.
In this scenario, if you have an overdrawn bank account, and your stimulus check is going to be deposited into that account, the bank can take all of your stimulus payment to satisfy your debt.
Thankfully, some large banks such as Bank of America and Wells Fargo have said they won’t use stimulus checks to settle debts. Likewise, you can immediately turn your stimulus check into cash to avoid the bank seizing your stimulus payment.
You can lose your stimulus money if, as a result of your tax debt, you have private creditors. These creditors can use court garnishment orders to collect your stimulus checks as recommence for your debt.
However, some lawmakers are working to prevent stimulus checks from being garnished by creditors.
Resolving Your Debt
As demonstrated above, there are instances where your debt will adversely affect stimulus eligibility. Unfortunately, debt will do more than complicate your ability to receive stimulus checks. Take active measures to prevent your debt from accumulating more penalties and interest.
File Before the Next Filing Deadline
Although this may sound obvious, taxpayers regularly acquire debt in the first place from not filing their taxes. Most recently, the tax deadline was extended from April 15th to July 15th. However, you shouldn’t count on the IRS extending the deadline again.
Preemptively file your taxes this tax season, or file for an extension if you think you’ll need more time. The key is to file as soon as possible, even if you don’t have enough – you will be given penalties, but they won’t be as severe if you hadn’t filed at all.
Moreover, not filing your taxes is one of the worst things that you can do if you already owe back taxes.
Seek Professional Help
It is statistically proven that taxpayers who seek professional tax help are more likely to win a favorable agreement with the IRS.
TaxRise routinely reduces our client’s tax liability by as much as 90% or higher. All of our knowledge, resources, and time will be dedicated to your case.
Furthermore, being free of tax debt is the most surefire way to safeguard your stimulus check- or future aid like it.
Any new or systemic Liens and/or Levies will also be suspended for the time being.
For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.
The IRS will not forward any new delinquent accounts to private collection agencies at this time.
Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.
Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.
The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.
“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”
Learn how easy it is to qualify for tax savings.