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Can the IRS take your stimulus rebate? Here's what to know

Those who still await their money from the first two stimulus checks will receive it in the form of a tax rebate, and the government may be able to garnish it.

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Johner Images | Johner Images Royalty-Free | Getty Images

At least 90 million stimulus checks went out last week as part of the $1.9 trillion American Rescue Plan, but there are still many Americans waiting on their first two checks.

Anyone eligible for a check who hasn't received their stimulus money from 2020 will receive the cash in the form of Recovery Rebate Credits once they file their 2020 federal taxes. However, if you're behind on certain debts, including child support and back taxes, you may get a smaller tax return than you expect depending on how much you owe.

While the CARES Act only made the first $1,200 stimulus exempt from state and federal garnishment (with the exception of child support), the terms of the $900 billion Covid relief bill passed in December protected the second round of stimulus checks from garnishment by all creditors, including private ones.

However, tax refunds are treated differently. If you're getting your stimulus payment in the form of a tax rebate, the amount may be reduced to pay debts owed. The Treasury Offset Program (TOP) is allowed to withhold money from your tax return for the following reasons:

  • Back taxes owed from previous years
  • Past-due federal student loans (currently suspended through Sept. 30, 2021)
  • Past-due court-ordered child support payments
  • Outstanding debts with federal agencies other than the IRS
  • Past-due state income taxes
  • Any unemployment compensation you must pay back

The IRS has agreed that it will not offset your stimulus rebate to pay for federal tax debts, but the agency cannot extend this discretion for state and other federal agencies.

As for upcoming payments, under the terms of the American Rescue Plan, your $1,400 stimulus check cannot be garnished for unpaid federal or state debt. However, the money may be garnished for unpaid private debts, such as medical bills or credit card debts, provided they are subject to a court order. And like with 2020 taxes, if you get your $1,400 stimulus check in the form of a tax rebate, the same offsets above could be possible.

Some consumer advocacy and banking groups are calling on Congress to pass a standalone bill to make the latest stimulus payment exempt from garnishment. In a joint letter by the American Bankers Association, Americans for Financial Reform and other groups, consumer advocates argue that allowing garnishment impacts struggling families the most and fails to carry out the objective of stimulus payments in the first place.

If you're still awaiting your third stimulus payment, you may track it using the IRS Get My Payment site.

Get ready for the upcoming tax deadline

Federal taxes are now due on May 17, 2021. Many states have also pushed back their deadlines accordingly.

To make doing your taxes easier, consider using an online tax filing program. Many offer upgraded plans with live tax experts who can help answer your questions about the Recovery Rebate Credit and how much stimulus money to expect in your 2020 tax return.

View our full list of best tax software of 2021.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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