The third incentive vouchers – $ 1,400 for each eligible adult and dependent – still end up in accounts, providing welcome relief to millions of people. But that relief may be short-lived for some as the $ 1,400 checks can be garnished by private collection agencies.
Unlike the second incentive payment, which was protected from seizure by private collection agencies after the first round of checks failed to provide protection, the third round of incentive checks also does not include a ban on seizure. That’s because of the oddity of passing the American Rescue Act through budget conciliation, which limited legislative options, according to a March letter from the American Bankers Association and other banking groups asking Congress to take steps to protect the payments.
While Congress has not acted, some states are pushing back, with governors and attorney general banning the seizure practice in recent weeks. Among them are New Jersey, whose governor signed an executive order on March 24 to protect the latest stimulus funds from debt collection agencies, and New York, where the attorney general blocked debt collection agencies from receiving the $ 1,400 payments from debtors. Other states that have introduced protections include Maryland, Massachusetts, Nebraska, and Washington.
But people in states outside of that handful may not have the same protections that a debtor asks for repayment through their incentive checks. In those states, debt collectors can claim the checks for $ 1,400, of the portion of the debt they owe, if they file a lawsuit and get a court order that allows them to collect the money. That could prove to be a concern for people who live from paycheck to paycheck or have suffered a loss of income, which, according to data from financial services provider TransUnion, is still experienced by 4 in 10 people.
“To allow [stimulus checks] Getting garnished could be a significant burden for some families, especially those in communities of color, who are under unprecedented conditions, “the letter from the American Bankers Association said.
Despite banking institutions’ belief that payments should be exempt from seizure, banks should comply with court orders to deposit the funds, the letter added.
Consumers should check the protections offered by their state to make sure there are no restrictions that could surprise them. In New Jersey, for example, the governor’s executive order protects $ 1,400 payments for 30 days. With many of the first checks arriving in accounts on March 17, that would extend the protection of those payments through April 17.
So far, the IRS has made 156 million payments in the third round of direct stimulus assistance, with 25 million people lining up this week to receive the $ 1,400 checks.
Protection from some
Recipients of the third incentive payments nevertheless enjoy some important protections. First, the IRS cannot accept the money to pay back taxes or if you owe other federal debts, the agency said late last month. The $ 1,400 checks also won’t be garnished to pay for child support backlogs, the agency added.
At the same time, some people are asking the IRS for adjust their payments from the first two checks to a line on their tax return called the Recovery Rebate Credit. This helps people get money they’re entitled to from the first two checks – which were $ 1,200 and $ 600 per eligible adult, respectively – if their initial payments lagged.
But the Recovery Rebate Credits can be reduced by federal and state debt, the IRS said. If someone owes money to the federal government or government agencies, those debts are deducted from any additional stimulus payments that those people would otherwise have received. There is one exception, however: The IRS said it will not withdraw money for federal income tax arrears starting March 18.