People who receive the direct payments as recovery rebate credits, or RRCs, when they file their 2020 tax returns will no longer see the funds diverted to pay off any outstanding federal taxes they might owe, National Taxpayer Advocate Erin Collins said in a blog post Monday. The government previously subjected the credits to offsets to recoup outstanding federal taxes as well as other debts.
"By allowing systemic relief for payments of RRCs without reduction for federal tax debts, the IRS will lessen burdens on taxpayers and the IRS' resources and provide a needed lifeline to the country's most vulnerable individuals and families," Collins said.
Rep. Bill Pascrell, D-N.J., the chairman of the House Ways and Means Oversight Subcommittee, said in a statement Tuesday that the IRS' decision to not offset these payments for federal taxes owed has given "needed flexibility" to taxpayers. Pascrell and eight other lawmakers wrote to the IRS in February urging the agency to make this change.
"The pandemic and economic pain of the last year have imposed unprecedented stress and strain on taxpayers," Pascrell said Tuesday. "That any Americans would find their stimulus payments garnished by the IRS is absolutely unacceptable."
But unlike pandemic relief payments that were sent out to people in advance via direct deposit, prepaid debit cards or paper checks, RRCs can still be offset for debts such as outstanding state taxes and excess unemployment benefits. This policy leads to a significant disparity between the tax treatment of people who get advance payments of the relief and people who receive the funds through the recovery rebate credits, Collins said.
The IRS' decision not to offset the credits to collect unpaid federal tax debts also doesn't address the fact that some people who are receiving the RRCs have already filed their 2020 tax returns and could see those funds reduced for their federal tax liabilities, according to her blog post. She said she would work with the IRS to recoup the money for those individuals.
Collins first detailed the different treatment of pandemic relief payments distributed as RRCs in January 2021, when she wrote in a separate blog post that changes by Congress in December 2020 permitted the IRS to reduce the credits for certain debts. While the Consolidated Appropriations Act
exempted its second round of economic impact payments from offsets for debts including outstanding child support, it didn't make that exemption available for nonadvance payments, according to her blog post.It also retroactively changed the Coronavirus Aid, Relief and Economic Security Act
of 2020 so that recovery rebate credits would be subject to certain offsets. The federal government has approved three rounds of direct payments for individuals who fall below certain income caps in an effort to stymie the economic fallout of the novel coronavirus pandemic. The CARES Act, passed in March 2020, authorized $1,200 direct payments for individuals, plus additional funds for qualifying dependent children, while President Donald Trump in December 2020 gave his signature to the Consolidated Appropriations Act and its round of $600 payments in December.
The American Rescue Plan
, signed by President Joe Biden on Thursday, authorized the third round of payments of $1,400 for individuals, with extra aid for families with children.Ultimately, Congress should consider treating RRCs the same as advance payments of the pandemic aid, Collins said Monday.
Representative of the IRS did not respond to requests for comment.
--Editing by Vincent Sherry.
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