Approximately 37,000 people in Wisconsin who were previously deemed ineligible for an Economic Impact Payment (EIP) may now be entitled to one.1 A recent ruling in a class-action lawsuit means that people in jail or prison cannot be denied a stimulus payment based solely on their incarceration status.2
It’s important to understand who is affected by this court order and what steps, if any, they need to take in order to receive their payment. The deadline was Oct. 30, 2020, for those filing by mail, but those filing online may do so by Nov. 21, 2020.
About the CARES Act and the EIP
On March 27, 2020, the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in response to the COVID-19 pandemic.3
The bill had many components, including a one-time stimulus payment made available to most Americans, called the Economic Impact Payment (EIP). The EIP provides $1,200 for individuals; $2,400 for married couples; and up to $500 for each qualifying child.
By mid-April, people across the nation were receiving direct financial aid aimed at stabilizing the economy and preventing economic hardships and other consequences like mass evictions. Although initially the Internal Revenue Service (IRS) sent EIP funds to incarcerated persons, they ended the practice in early May, when the IRS inspector general became aware. Jails and prisons were instructed to withhold and return any payments sent to their institutions, and incarcerated people who had already received payments were told they must return the funds as soon as possible.
The IRS also advised people that if they applied for the stimulus while incarcerated, they would be committing fraud.
The California Case of Scholl v. Mnuchin
The confusion, mixed messages, and the denial of access to the stimulus program created a hardship for Colin Scholl and Lisa Strawn, two people incarcerated in the California Department of Corrections and Rehabilitation system. In August 2020, Scholl and Strawn filed a class-action lawsuit, on behalf of all incarcerated people in the United States, against the IRS seeking access to the EIPs.
On Sept. 24, 2020, U.S. District Court Judge Phyllis J. Hamilton issued a preliminary injunction, ruling that denying stimulus funds based only on a person’s incarcerated status was likely unlawful. In Scholl v. Mnuchin, Judge Hamilton wrote:
Defendants have not directed the court to any other evidence indicating that the Treasury Department or IRS gave any reason for its decision, much less an adequate one. … The fact that defendants offer virtually no defense on the merits of plaintiffs’ arbitrary and capricious claim is telling. This concession is compounded by the shifting interpretation of the term “eligible individual” with no corresponding public explanation of why the IRS changed its interpretation or the basis for its current position.4
On Oct. 24, 2020, the court granted the plaintiffs’ motion for summary judgment against the IRS, converting the preliminary injunction into a permanent injunction. The IRS is required to stop denying payments to people based on their incarceration status, to reissue the payments that were previously retracted, and to reconsider refund claims that were denied on this basis.
Questions and Answers
The implications of this lawsuit are considerable. Around 1.5 million people are currently incarcerated in prisons and jails in the U.S. In Wisconsin alone, there are approximately 23,000 people in the state prison system, and even more in county jails.5
You may have clients who are incarcerated or were recently incarcerated that are now eligible for the EIP.
Here are questions and answers to help you determine if your client is eligible and the steps to be taken to apply their EIP:
Is my client eligible for this payment?
Those eligible for this payment must meet the following criteria:
must be a U.S. citizen or eligible alien;
must not be married to someone who lacks a Social Security number, or have a child who lacks one, unless your client or your client’s spouse served in the Armed Forces in 2019;
must have filed a tax return in 2018 or 2019, or were exempt from filing a tax return because your income was below $12,000 a year (or if married and filing jointly, below $24,400);
must not have been claimed as a dependent on another person’s tax return; and
must make less than $75,000 annually ($150,000 for married couples filing jointly). (People may still be able to receive the EIP if their income is above this amount, although it will be reduced.)
If my client on parole, supervised release, released from all restrictions, and/or their record has been expunged, can they make a claim?
Yes. If your client can meet the other requirements, they can make a claim.
How does my client receive these payments?
If your client has already filed a tax return in 2018 or 2019 and has direct deposit set up with the IRS, they should not have to do anything. The IRS is already processing those direct deposit payments.
If your client filed a tax return in 2018 or 2019 and did NOT have direct deposit set up, they can go to irs.gov/coronavirus/get-my-payment and enter bank account information. If they are not able to access the internet, they should send a change of address to the IRS for to where to send the payment. While the IRS has some data from correctional facilities, it may be incomplete.
Incarcerated people can update their address with the IRS by sending them a written statement with all of the following: full name; previous address; current address (the prison mailing address, if incarcerated); and SSN, ITIN, or EIN. Wisconsin residents should mail this statement to Department of the Treasury Internal Revenue Service Fresno, CA 93888-0023. A paper check will then be mailed.
If your client currently receiving SSDI, SSI, retirement or survivor’s benefits, they do not need to do anything. The IRS should process these payments. If they have dependents, they will need to go to irs.gov/coronavirus/non-filers-enter-payment-info-here and enter their information to receive the additional payment of $500 per child.
If your client formerly received SSDI, SSI, retirement or survivor’s benefits and is not receiving these benefits now due to incarceration, they will need to mail in a paper 1040 form (see below).
Clients who do not receive federal benefits and did not file a tax return in 2018 or 2019 can go to irs.gov/coronavirus/non-filers-enter-payment-info-here. Clients without internet access can file a simplified paper tax return on the IRS form 1040. This form should be mailed to: Department of the Treasury, Internal Revenue Service, Fresno, CA 93888-0002.
This form can be used even if your client had no earnings in the past two years. Instructions on filing a simplified paper tax return to claim the EIP are available on the IRS website.
A blank copy of the IRS 1040 form, instructions on the paper form, as well as sample IRS forms and further information about this settlement can be found on this website.
What happens after my client files a claim?
If your client filed a claim electronically through the online portal, they will receive an email from the IRS letting them know when they are “approved.” They can check the status of their payment online, typically within two weeks of filing a claim. Once a payment goes out, the IRS will send a letter stating that the payment was made.
The IRS is currently taking 4-6 weeks to process claims from the times claims are approved by the IRS. This could be slightly longer if your client is receiving a paper check, or if they are incarcerated and their prison or jail has rules about check distribution.
My client owes money to a government entity. Will their payment be garnished?
No, the EIP can only be withheld or redirected if they are delinquent in child support payments. If their payment is withheld, your client should still get a letter telling them it was issued to pay child support.
Is there anything else I should know to assist my client in getting EIP?
So far, the IRS has not allowed friends, family members, or attorneys to file claims or sign forms on behalf of incarcerated people, even with documented power of attorney. As such, right now it’s best to advise clients that they must sign and file their claims themselves.
If your client is currently incarcerated, their DOC number should be included in their address on any form or correspondence to the IRS. If your client is incarcerated and planning to receive a paper check, please find out the procedure necessary to deposit that check.
If your client is homeless, they are advised to use the address of your local Aging and Disability Resource Center, shelter, etc. (after coordinating with them) to receive the payment via paper check.
Conclusion: Reach Out to Your Clients
In a time of uncertainly and economic hardship for so many people in our state, the chance to help clients navigate a confusing process and access much-needed assistance is a worthwhile endeavor.
Every attorney is encouraged to take the time to reach out to clients who may have been affected by the IRS’s decision to deny aid based on incarceration status and make sure they are aware of their options.
The Reentry Legal Services Program represents incarcerated people as they approach their release from prison. Staff assists with applying for disability, health care and other public benefits.
This article was originally published on the State Bar of Wisconsin’s Public Interest Law Section Blog. Visit the State Bar sections or the Public Interest Law Section web pages to learn more about the benefits of section membership.
1 The 37,000 figure is estimated based on the 2019 Wisconsin Department of Corrections data, which showed 23,692 incarcerated in the prison system, and 2018 data showing that approximately 13,400 people are incarcerated in Wisconsin jails at any given time. See 2019 Profile of Persons in Our Care, Wisconsin Department of Corrections, July 2020; and Rob Mentzer and Keegan Kyle, Rising Inmate Population in Wisconsin Strains Local Jails, Wisconsin Public Radio, Jan. 16, 2020.
2 Scholl v. Mnuchin, Case No. 20-cv-05309-PJH (N.D. Cal. Sep. 24, 2020).
3 U.S. Congress. S.3548. 116th Congress (2019-2020).
4 Scholl v. Mnuchin, Case No. 20-cv-05309-PJH, 28 (N.D. Cal. Sep. 24, 2020).