How Will I Get My CARES Stimulus Payment if my Preparer Paid My Refund?

Today we welcome guest blogger Connor Moran. Connor practices business, estate, and tax law at the Portland, Oregon firm of Kell, Alterman and Runstein, including both planning and controversy work. He was previously a Senior Attorney at the Internal Revenue Service Office of Chief Counsel. At the University of Washington law school he volunteered as VITA tax preparer in Alaska for Native Fishing Communities as well as local communities in Seattle picking up his interest in assisting low income taxpayers. He writes today about one of the many issues that arises in connection with the rebate check and one that can prevent low income individuals from getting their check or cause them much effort to obtain it. Keith

Update: On April 21, 2020, the IRS released more information on this issue. The IRS states that in some cases, the payment may be loaded onto a prepaid debit card, just as the refund was. In other cases, the bank will reject the deposit and return it to the IRS. The IRS will process the payment and mail payment to the most current address the IRS has on file for the taxpayer.

The IRS also noted that a due to a reporting error the “Where’s My Payment” app sometimes stated that rejected payments were going to the same account a second time. According to the IRS, these payments were in fact to be mailed as checks  and not re-sent to the closed account.

If you experienced this issue and were not aware that your refund was paid through your preparer, you may reconsider your choice of preparers in the future. IRS and banking rules require clear disclosure of the use of these products and any associated fees. For many taxpayers, IRS FreeFile, available through the IRS website allows you to file without the fees associated with commercial preparers.

As most Americans know by now, the CARES Act instructs the IRS to send every non-dependent with a social security number a payment of $1,200 for an individual ($2,400 for a married couple), with an additional $500 for each child. The payments phase out for people with income over $75,000 for an individual or $150,000 for a married couple.

In order to get the money to you as soon as possible, the IRS will direct deposit the stimulus payment if the IRS knows your bank account. The IRS will rely on the bank account information reported on a taxpayer’s 2018 or 2019 income tax return in order to quickly deliver the checks to intended recipients.  For taxpayers who have not yet filed an income tax return for 2019 or for whom the filed 2019 return has not yet been processed, the IRS will use the information from the 2018 tax return, if filed.

The IRS is rolling out a “Get My Payment” application for taxpayers to enter direct deposit information if it’s not already on file, but reportedly this app cannot be used to update existing bank account information. The IRS’s description of Get Your Payment states that it will allow taxpayers who have not provided direct deposit information to provide bank information, but does not indicate that it will allow taxpayers to change information the IRS already has on file.

This raises a critical issue for the more than 21 million taxpayers who received refund anticipation checks, also known as refund transfers. This number comes from page 15 of an April 2019 GAO report addressing tax refund products.  If you received your refund from your preparer instead of from the IRS, whether as a check, as a prepaid debit card, or to your account via a bank rather than directly from the Treasury, this likely includes you.


This issue generally arises when a low income taxpayer goes to a paid preparer and lacks the money to pay the preparer for the cost of preparation and/or wants the refund immediately rather than waiting for the IRS to deposit the refund in their bank account, if the taxpayer has one, or receipt of a paper check. Rather than pay up front for tax preparation services, the taxpayer agrees to let the preparer set up a temporary bank account into which the IRS will deposit the tax refund. Tax preparer fees are deducted straight from the refund, and the preparer either gives the taxpayer a check up front or a prepaid debit card that will be funded when the refund arrives.

See the problem?

If you used one of these services, the IRS doesn’t have your bank account information, but it maybe thinks that it does. The bank account numbers belong to a temporary account that does not belong to the taxpayer, and may no longer even exist.

This problem overwhelmingly affects low-income taxpayers who likely need these payments the most desperately.  While the IRS makes efforts to track when such products are used by taxpayers, the indicators used by the IRS are not without flaws.

Unfortunately, we simply don’t know how the IRS is handling this issue. If the IRS treats these temporary accounts as closed accounts, you would receive a check instead of direct deposit. As of April 9, 2020, one bank that works with many tax preparers to issue these checks and prepaid debit cards indicated that persons who used these services will receive checks from the IRS. The paper check is better than nothing, but means waiting months for money people need now.

Worse, the IRS may actually deposit funds to the accounts. As yet, the companies associated with these services have given no information about how they would handle such deposits. Given the industry’s track record, it is likely that such deposits would mean that money desperately needed by low-income people affected by the coronavirus will be subject to unnecessary fees.

What can taxpayers do?

Taxpayers who haven’t filed for 2019 can file for 2019 and provide their own bank account information, if they have a bank account. The vast majority of affected taxpayers qualify for free tax preparation through IRS Free File, MilTax, or Coast Guard benefits.

What should the IRS do?

From the IRS, ideally the Get Your Payment app would allow us to update direct deposit information the IRS has on file as well as add direct deposition information when the IRS doesn’t have it. Unfortunately, as Nina Olson wrote in her earlier post on Procedurally Taxing, the IRS is starved for resources, hampered by the pandemic, and working with an ancient computer system.

If the IRS cannot give us a way to update our information, at least it should provide guidance so we can predict and plan accordingly.

What should the tax preparation industry do?

From the tax preparation and tax financial service industry, we need an immediate commitment that they will loudly inform all customers filing now that using these products may delay or divert stimulus payments.

For customers who can’t pay up front for tax preparation services, the tax preparation industry must commit to informing taxpayers of free alternatives like IRS Free File and MilTax.

We also need commitments that preparers and banks will immediately forward any stimulus payments they receive to the intended recipients, without additional fees.