Social media is full of stories about people struggling to access their stimulus checks from the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March. There is even a Reddit sub dedicated to complaints. The facts bear this out. New America, the think tank where I work, estimated that as of mid-June, up to 5 to 10 million Americans were still awaiting their full stimulus payments. (New America is a partner with Slate and Arizona State University in Future Tense.) However, there’s another problem with the stimulus program that has received far less attention: Up to 6 million households unwittingly blocked their access to the Earned Income Tax Credit simply by requesting their stimulus checks.
The federal EITC is something that low- and moderate-income working Americans can qualify for. It happens to be the nation’s largest means-tested anti-poverty program, providing an average of $3,191 to millions of eligible families with children. This year, because of a technical glitch with the IRS platform some used to claim the stimulus check, many of these families now have no way to file taxes. This means there’s also no immediate way to claim their EITC payments. The IRS has outlined ways that they can claim their payments. But straightening this out may take several months, and many of the recipients don’t have those months to spare.
Lisa Charles falls into this group. Charles, the divorced mother of two boys, ages 12 and 5, typically qualifies for the EITC, and the 2019 tax year was no different. She is currently waiting for thousands of dollars from the IRS. This is a serious problem for her family: Charles works when she can, but spends the bulk of her time tending to her older son Seth’s severe medical problems. A few years ago, he was diagnosed with hypoglycemic encephalopathy. “Now he’s 100 percent dependent—wheelchair dependent, feeding tube dependent,” she told me over the phone. “Because of the severe brain injury it’s like he’s a paraplegic without a spinal cord injury. The bills for his care continue piling up. It’s overwhelming enough to deal with without worrying about how to pay for it all, too.”
Seth spends a lot of time in and out of the hospital, battling seizures, pneumonia, and other issues. In March, he was rushed to the hospital, where he was diagnosed with septic shock and put on a ventilator. He stayed there for more than a month. “I wasn’t thinking about filing taxes or about the stimulus check or anything other than my two boys,” she said. “But I got a text from the legal aid attorney from the [Philadelphia Equal] Justice Center telling me that I needed to file so I could make the deadline for the stimulus payments for my boys.”
That’s where the problem started. Because Charles was below the filing threshold and therefore had not filed 2018 or 2019 taxes, she was one of an estimated 12 million Americans who had to proactively claim her stimulus check using the IRS’s new non-filer portal.
Sitting beside her son at the hospital, she filled out the form to claim a $2,200 payment: $1,200 for herself and $500 for each of her sons.
“I really needed it—and still need it—because I am really behind on my rent and am facing eviction. I figured by filling out the form I would get that money as well as my refund including the earned income credit,” she said.
However, the money never came. For still-unexplained reasons, the IRS only issued Charles $1,200 of the $2,200 she should have received from the CARES Act. In other words, Charles—through no fault of her own—put in jeopardy the $2,148 of EITC she was entitled to in her haste to expedite $1,200 of stimulus funds.
What Charles didn’t understand at the time is that the non-filer portal does not provide access to the EITC. In fact, it makes it more challenging for households to claim it at all. The portal is designed to file simple tax returns for those who, like Charles, earn little enough that they are not actually required to file taxes. However, since the IRS does not permit a single person to e-file two tax returns in the same year, Charles was left without a way to claim the EITC in the near future. In June, when her money still hadn’t arrived, Charles sought assistance at a local low-income taxpayer clinic to file taxes and claim her credit. Like millions of others, she was denied. The IRS said she had already filed taxes via the portal and couldn’t do so again electronically.
What’s happening to Charles is happening all over the country, according to Nicole Rappin, user research manager at Code for America. “If a tax filer tries to file the Form 1040 when they have already submitted the non-filer tool to claim the [CARES payment], it is rejected for duplicate filing—reject code R0000-932-02,” she said. While there’s no way to tell how many people this is affecting, it could number in the millions, says Gabriel Zucker, a fellow at New America. “The IRS hasn’t told us exactly how many have tried to file and gotten blocked, but it could be up to 6 million.” When the IRS finally acknowledged the “filing trap” issue in June, it advised that families would have to submit a corrected Form 1040 by mail, with the words “Amended EIP Return” written at the top. (EIP stands for economic impact payment—how the IRS refers to the CARES money.) But even this solution is insufficient, since paper form processing by the IRS was on hold from March 30 to mid- June because of the pandemic. The IRS is still catching up.
As Rappin put it: “There is no process or status tracking on the paper forms, so tax filers essentially send their paper into a black hole. Once the IRS processes the paper return they can distribute the tax filer’s refund including the EITC.” For Charles, that could be in a month, two months, or six. The IRS is only now beginning to clear out its backlog of more than 10 million paper forms, and has yet to clarify when it will be done. Some experts say the IRS may push refunds off until the fall or early spring of 2021. Unfortunately, Charles’ bills—including her rent—won’t wait.
The IRS won’t comment on individual tax payers and their issues, and points to an FAQ on its site laid out the mail-in process.
In July, New America, in association with the Center for Taxpayer Rights, laid out simple technical solutions for all of the major outstanding issues. These include asking the IRS to simply automate outstanding EIPs using data already available from information returns; allow Social Security and Veterans Administration beneficiaries to claim dependents and receive additional supplementary EIP throughout 2020; and expedite or waive pending reviews or examinations on tax returns for households who have yet to receive EIPs—especially returns filed via the non-filer portal, among other options.
For Charles and her sons, these fixes can’t happen soon enough. A legal aid attorney went to court for her recently to stop eviction proceedings against her. Still, with no savings and no way to work, the missing $3,148—the EITC and the missing $1,000 of her CARES funds—means the difference between a home for herself and her children and being put out on the streets.