Last night, the Treasury Department announced it was reversing course and would make direct coronavirus rebate payments to Social Security beneficiaries even if they do not file tax returns. The decision was hailed as a victory by advocates for low-income seniors.  But, in fact, those Social Security beneficiaries would likely get their money much faster if they do file a federal income tax return.

The twists and turns are hard to follow. But here is the short version of the story: The Coronavirus Aid, Relief, and Economic Security (CARES) Act that Congress passed last week provided for payments of $1,200 for adults and $500 for children under age 17. But to get the money, most people would have to file a federal income tax return for 2019 or, failing that, for 2018.

But the law allowed an exception for those who received Social Security benefits--reported on a Form 1099-SSA. It said the IRS would send them a payment automatically even without a Form 1040 income tax return. But on March 30, the IRS changed course and announced that those older adults would have to file a “simple” tax return to get their money.

Firestorm

This created a firestorm among advocates and some on Capitol Hill who argued, with some justification, that the filing requirement would result in millions of Social Security beneficiaries missing out on the payment.  In a similar situation in 2008, about 3 million people over 65 did not receive stimulus payments because they failed to file a similarly simple return.  

In response, the Treasury changed policy. Yesterday, it  decided that Social Security beneficiaries would not have a file a tax return after all to get their 2020 payments.

But as my Tax Policy Center colleague Janet Holtzblatt wrote yesterday, before the Treasure changed its mind, the filing requirement had one major benefit: It would have accelerated payments to those Social Security recipients.

The problem is that the IRS must sort through three billion Form 1099 information returns to find those that report how much Social Security paid its beneficiaries. It then has to match them to those retirees who already have filed tax returns and, for example, properly connect them to their spouses. Only then can the agency pull out those who have not filed their 1040s and send them the coronavirus payments.

“Very likely months”   

As Janet noted, all that will take time—at least weeks and very likely months. That’s why she suggested that seniors who have not yet filed a federal income tax return for either 2019 or 2018 do so anyway. Perhaps they could wait to file one of the simple returns IRS promises to create. Or, if they’d prefer, file a regular Form 1040 now.

Indeed, the updated IRS guidance suggests some beneficiaries still may have to file a tax return to get the correct payment. For example, because the Form 1099-SSA does not identify dependents, a retiree who is a guardian for a grandchild won’t get the $500 payment for the child without filing a 1040—at least not “at this time,” according to the IRS.  

The optics of making older adults file a special tax return were a problem. By dropping the requirement, Treasury defused a controversy and will maximize the number of Social Security beneficiaries who will get payments.

But the decision will have an unintended result: It will slow payments to all low-income seniors who have not filed tax returns.