The Internal Revenue Service is once again depositing the latest round of Economic Impact Payments in the wrong bank accounts in a replay of problems experienced last year by many taxpayers.
The problem stems in part from tax preparation companies that used temporary bank accounts in previous years where taxpayers could receive their tax refunds, while the tax prep companies took a portion of the refund for payment. The temporary bank accounts were later closed, but the IRS relied on the old information it had on file for those bank accounts when it began making direct deposits this week of the latest round of stimulus payments.
Paul Winghart, Market Economist, Founder & Chief Knowledge Officer, Wing-O-Metrics LLC.
Paul produces, distributes and charges for subscriptions for original economic commentary primarily for professional financial advisors.
Mr. Winghart is the author of ConsterNation!: The Economics Behind The Angst which examines the long-term economic fundamental that is holding the economy back from realizing enough of its potential, thereby causing all economic angst.
Since 2014, Paul has been an Adjunct Instructor of Business & Economics at Bethel University, North Central University and is currently teaching at the University of Northwestern -Saint Paul.
From 1998 to founding Wing-O-Metrics LLC, Paul was Vice President – Market Economist & Senior Fixed Income Strategist for RBC Wealth Management where he discerned and accurately prognosticated trends in U.S. interest rates. He also researched and interpreted evolutions in credit ratings to gain an understanding and appreciation of their implications on specific fixed income securities.
He has been published the Municipal Finance Journal Winter 2010 & Bloomberg News 2012. He was also nominated for selection to Financial Advisor / Private Wealth Magazine’s annual Research Manager / Due Diligence all-star team in 2011 & 2012.
Paul holds a Bachelor’s degree in Economics from the University of Minnesota and an MBA in Finance from Bethel University.
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The banks have to send back the deposits to the IRS, and taxpayers will have to update their information with the IRS directly. However, some are already complaining about the problems in receiving the much-needed payments in the midst of the economic crisis from the pandemic. They have been checking the IRS’s online Get My Payment tool and finding that the deposits went to bank accounts that don’t match their own. In a FAQ page about the Get My Payment tool, the IRS advises taxpayers that they may need to wait until later this year to claim a tax credit for the missing stimulus payment, but for those who are desperate for funds to pay their bills as soon as possible, that will be a long wait.
“Because of the speed at which the law required the IRS to issue the second round of Economic Impact Payments, some payments may have been sent to an account that may be closed, or is no longer active, or unfamiliar,” said the IRS on Tuesday. “By law, the financial institution must return the payment to the IRS; they cannot hold and issue the payment to an individual when the account is no longer active. If Get My Payment shows ‘Payment Status #2 – Not Available’ you will not receive a second EIP. The IRS advises people that if they don't receive their Economic Impact Payment, they should file their 2020 tax return electronically and claim the Recovery Rebate Credit on their tax return to get their payment and any refund as quickly as possible.”
Some customers of both H&R Block and Intuit’s TurboTax have reportedly been among those who have been affected and the two companies are providing some information about how to deal with the problem.
“If you purchased Refund Transfer with last year’s taxes, the IRS Get My Payment tool may be reflecting that account number,” said H&R Block on a web page about the second stimulus payments. “Simply check your tax return to see if it matches the account number displayed in the tool. If it matches, your stimulus payment will be sent from this account the same way you received your tax refund — deposited to a bank account or mailed as a check. Direct deposits should be received by end of day, Wednesday, Jan. 6.”
However, H&R Block acknowledged that for some customers, the second stimulus payment may have been sent back to the IRS and they will need to claim the tax credit on their tax returns later this year. “All financial institutions are required to return second stimulus payments in certain circumstances, such as when they are sent to a closed account. In these cases, payments were returned to the IRS and a check is likely to be sent by the IRS,” said Block. “This affected less than 1% of second stimulus payments processed by H&R Block. Changes can be reconciled at tax time. For those who did not receive the first stimulus payment, believe they did not receive their full stimulus payment amount, or had changes in their circumstances, such as the birth of a baby, a Recovery Rebate Credit can be claimed when 2020 taxes are filed this year. Save any letters received from the IRS about stimulus checks and present them when you work with an H&R Block tax pro to file your 2020 tax return.”
Intuit explained the situation on its TurboTax Twitter page. “The IRS is directing people looking for stimulus information, including eligibility, payment timing & distribution details, to http://IRS.gov for the most up to date information,” said Intuit. “If you are a Turbo card customer and your stimulus was sent to your card, you can follow the steps here to get a replacement card if needed: https://intuit.me/2LlwzK8. As part of the Tax Filing process, TurboTax sends the appropriate banking information to the IRS to deliver stimulus payments directly to customer bank accounts. The IRS announced yesterday that due to the speed at which they issued this second round of payments, they sent some payments to an account that may be closed or no longer active. By law, in these cases the financial institution must return the payment to the IRS. Unfortunately, the IRS has also stated that, while they are exploring options to correct these payments, this may cause a delay in stimulus payments for some. Please know that the IRS will make updates to the Get My Payment portal to provide updated information for taxpayers, you will be able to see updates about your payment here: https://irs.gov/coronavirus/get-my-payment.”
On Wednesday, Intuit said in a blog post it is working with the IRS and the Treasury to fix the situation and it has provided the correct bank accounts for them to use for depositing the stimulus payments: "We have been working tirelessly on a solution with the Treasury and the IRS. As a result, our expectation now is that within days the error will be corrected and stimulus payments will begin being deposited into the correct bank accounts. We have also re-confirmed with the IRS that they have all of the correct banking information for our customers."
On Friday, a TurboTax spokesperson emailed Accounting Today to say, “Stimulus payments for millions of TurboTax customers affected by the IRS error will be deposited starting January 8th. We have been working tirelessly with the Treasury and IRS to get stimulus payments to our customers. We know how important these funds are for so many Americans and we regret that an IRS error caused a delay.”
