This article by Paul Kiel, Justin Elliott and Will Young originally appeared as “Millions of People Face Stimulus Check Delays for a Strange Reason: They Are Poor” on ProPublica.org on April 24, 2020.
Last week, a group of angry and desperate Citi Tax Financial customers gathered outside the company’s storefront in Augusta, Georgia. Millions of Americans had received a big deposit from the IRS in their bank accounts, but they had not. The IRS website told them their coronavirus stimulus checks were deposited in an account they didn’t recognize.
With an officer from the Richmond County Sheriff’s Office beside him and another officer shouting for people to be quiet, the tax preparation company’s owner told the crowd of about 60, only a few of whom wore masks, that he didn’t have their money.
Because of the baroque machinery that runs the tax preparation industry, the IRS had sent the money to a bank Citi Tax works with but the customers had not heard of. That bank sent the payments back to the IRS.
Citi Tax’s clients — just like some clients of big tax brands such as H&R Block, Jackson Hewitt and TurboTax — didn’t get their money for the very reason Congress wanted to get money to them quickly in the first place: They are poor. The Georgia customers, almost all black women, are among the likely millions of Americans who are having trouble getting the stimulus funds they are owed. The IRS’ difficulty in swiftly getting payments to Americans has a basic, root cause: There are multiple private actors sitting between the IRS and tax filers.
“Because we have an entire industry that survives on — and is a huge force in maintaining — this system in which they are third-party intermediaries, you end up with these delays and complications,” said Chi Chi Wu, an attorney at the National Consumer Law Center.
The stimulus problems are part of a constellation of pain faced by the poor in accessing CARES Act money, from the possibility that banks could seize the money to pay off debts to advocates’ fear that, when paper checks arrive, the check-cashing industry will snatch a hefty chunk.
The tax prep business is built on a complex infrastructure designed to extract fees that many customers cannot afford. When the government tried to navigate that system to speedily get cash to its citizens, it ran into big problems.
The IRS estimates that it will send the $292 billion in CARES Act money to 171 million Americans. The first wave of payments sent out last week was targeted to less than half of those eligible: 80 million Americans whose 2018 or 2019 tax refunds had been directly deposited. To disburse most of the remaining payments, the agency is planning to mail 81 million paper checks bearing the president’s name, according to an IRS budget document.
But for a large portion of the 80 million people the IRS tried to reach last week, “direct deposit” is a bit of a misnomer. Each year, the tax refunds of more than 20 million Americans, including many of Citi Tax’s customers, take a detour. These customers don’t pay their tax preparation fees upfront, instead opting to have the fee taken out of their refund. Because regulations prohibit tax prep companies from receiving refunds directly, a special, temporary account is created at a bank that plays the middleman. The bank takes out whatever fees are owed and then passes the remainder on to the customer.
Now some of these waystation banks are sending the checks back to the IRS, saying in public statements they received them by mistake, causing significant confusion and delays. And it’s possible that some of these banks will extract fees before the stimulus money makes its way to those the government was trying to help.
Citi Tax customers aren’t the only ones facing problems. After ProPublica posted a questionnaire about stimulus payment problems last Friday evening, around 1,400 responses flooded in. People told us about madly refreshing the Get My Payment page from the IRS and calling their banks and tax preparers. Some said they needed the money for food. Some said they had been notified that payments went to accounts they didn’t recognize. Others said they’d been told they had been paid, but the money hadn’t arrived.
“My daughter and I are starving here, and we don’t have much of a shelter. I don’t know what we’re going to do if we don’t get this now,” said Aaron Buckels, a cashier in Crawfordsville, Indiana.
Like many others who wrote in, Buckels depends on his tax refund every year. He was eligible to file his taxes for free. Not knowing that, he did his taxes through TurboTax, which charged him $80, according to his receipt.
He was unable to afford that upfront. So, he paid another fee, $40 more, for TurboTax to use his refund to pay what he owed the company for preparing his return. When it came to receiving what remained of his refund, Buckels chose to have it deposited on a debit card, an option heavily promoted by TurboTax. The company pitches the Turbo Card option as a way to get refunds “fast” — but the fine print reveals that it’s only faster than a paper check. It also comes with additional charges, including a $4.95 monthly fee.
That’s where the IRS was going to send Buckels’ stimulus money, according to the agency’s Get My Payment page. But the funds haven’t arrived. Buckels was one of more than 50 TurboTax users who got both a refund transfer and a Turbo Card who told ProPublica they’d yet to receive their payments. It’s still not clear where the breakdown occurred between the IRS, the bank that handled the refund transfer and the debit card.
Despite numerous customer complaints about delays, a spokesman for TurboTax-maker Intuit, Rick Heineman, said, “These are TurboTax customers and needed stimulus payments, so our actions reflect our efforts to deliver the funds to accounts as quickly as possible with no delay and no fees.” He added that, “The IRS is ultimately responsible for determining how and when the stimulus payments will be delivered to Americans…”
Read the full report on ProPublica.org.
Hannah Fresques contributed reporting.
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