US economy

Millions of Americans face crisis payment delays

Millions of Americans who have used tax preparation services or software are at risk of receiving their coronavirus crisis payments months later than they might expect, creating room for confusion as the relief programme moves forward, consumer advocates say.

Steven Mnuchin, US Treasury secretary, said on April 2 that direct payments of up to $1,200 per person would be wired “within two weeks” to the bank accounts of people with direct deposit details on file at the Internal Revenue Service. Cheques for others, including Social Security recipients, would be sent by mail “very quickly after that”, he said.

The problem for consumers who have received tax preparation assistance is that many might think their deposit details have been sent to the IRS when they have not. That is because they have used “refund transfer” services in which their refunds have been routed through a temporary account set up at a bank working with their tax preparation company.

As a result, these taxpayers could have to wait to receive their “economic impact” payments via cheques sent to the home addresses on their tax returns, significantly slowing down the distribution of the money.

Ron Wyden, a Senate Democrat, has said such cheques could take “months” to arrive. Democrats on the House Ways and Means committee estimate it could take up to 20 weeks for Treasury to process all the cheques. Treasury did not respond to a request for comment.

Economists say that speed will be of the essence for Treasury as it distributes the crisis payments because of the severity of the downturn resulting from the coronavirus pandemic.

“It’s getting worse as time goes by,” said Ioana Marinescu, a labour economist at the University of Pennsylvania. “People who lost income are in dire straits.” 

“Refund transfer” services are popular with lower-income Americans because they provide a way to avoid paying the costs of tax preparation, which can run into the hundreds of dollars, up front.

According to the US Government Accountability Office, an internal watchdog, 21m Americans used such a service in 2018. Temporary accounts are also used by tax preparers for a much smaller number of people who borrow against their refunds.

Chi Chi Wu, of the National Consumer Law Center, said customers who used tax preparation software could also wind up being paid by cheque when they were expecting a bank transfer.

“This is the most insidious,” she said. “If you do your taxes on software and it asks whether you want to pay for the software or the filing expenses out of your refund . . . you’re getting one of these products.”

While Treasury has said “the vast majority of people do not need to take any action” to receive their payments, Mr Mnuchin said a web portal would be set up for people to provide their bank details to the IRS.

 “We can process a lot of cheques, but . . . in this environment, we don’t want people to get cheques,” he said. “We want to put money directly into their account.”

The GAO said banks that handle refund transfers collect fees of $33-$35 per transaction. The tax preparer collects an additional fee for the service. Sometimes tax preparers offer incentives to encourage the transfers — charging more to pay refunds using paper cheques, for example.

H&R Block, a tax preparation firm that provides refund transfers, did not respond to requests for comment.

“We’re awaiting guidance from the IRS on how that situation across the industry will be handled,” said a spokesperson for Intuit, an online tax preparer. “We hope to have more information from the IRS soon and will be sure and share as soon as we hear.”


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