Here’s What Happens To Your Stimulus Check If You Got Your Tax Refund Using A Loan Or Advance

As COVID-19 continues to impact the United States, the federal government is taking action to ease the burden on taxpayers. Most recently, as part of the CARES Act, the Treasury Department is sending out stimulus checks to most (but not all) Americans. Those stimulus checks are starting to hit bank accounts now, which is offering relief for some taxpayers – and anxiety for others.

I’ve been fielding questions about the checks for a bit now, and these articles (All You Wanted To Know About Those Tax Stimulus Checks But Were Afraid To Ask and Answers To Your Most Commonly Asked Questions About Those Tax Stimulus Checks) answer a lot of those questions.

One question that I haven’t addressed in detail until now is what happens if your refund was tied to a refund anticipation loan (RAL), refund anticipation check (RAC), or similar product. In those events, refunds are not usually directed to your bank account, but rather to an account managed by a third party (like a lender or preparer). The question, of course, is how to make sure that money gets to you – as the taxpayer – and not to the third party.

My guess was that the Internal Revenue Service (IRS) would ignore those refund accounts for purposes of reaching taxpayers.

Today, the new National Taxpayer Advocate Erin M. Collins confirmed that to be the case. Writing in her NTA blog, she notes that, “When a taxpayer purchases a RAL or RAC, a virtual bank account is established solely for purposes of receiving the refund and facilitating the transaction. The account does not continue to exist, and therefore Economic Impact Payments delivered to virtual accounts by direct deposit would not reach the intended recipient.”

(You can read more about Erin Collins here.)

Worrisome, right? Fortunately, the IRS has been down this road before. As Collins points out, those tax returns have an electronic indicator. That means that the IRS can identify you and make sure that payments are not delivered to those virtual accounts used to file the return.

If the tax returns also transmitted your underlying bank account information of the taxpayer, the IRS may be able to direct deposit refunds into your regular bank account. If that’s not possible – and the IRS doesn’t have your information on file – they’ll send your check by mail.

If you haven’t filed a tax return in 2018 or 2019 – did not have to file – you can register for your stimulus payment with the IRS (more info here). If you did file a return, but the IRS doesn’t have your direct deposit info (because, say, you owed instead of got a refund), you can register for your stimulus payment with the IRS (more info here).

As I’ve previously reported, folks who rely on Social Security retirement or disability benefits and Railroad Retirement benefits who are not typically required to file a tax return will receive their payment directly to their bank account.  

If someone else claimed you on their tax return, you will not be eligible to receive a check. If you’re looking for more information about dependents, check out this piece.

If you don’t know the status of your check – or you think you’ve done something wrong – hang tight. The IRS is not answering calls right now, and correspondence is limited. The IRS does ask that you do not file a second return if you are still waiting for your return to be processed (that could slow you down even more).

Finally, keep in mind that the payment is NOT taxable and will not affect your 2020 refund. 

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