Stimulus Check Update: Caught Up in the TurboTax Snafu? Here's Where Things Stand

While millions of Americans wait in frustration for their stimulus checks, tax preparation companies work feverishly to get them in the mail.

Millions of Americans used tax preparation software to complete their 2019 taxes. If you're one of them, you may find yourself waiting just a little longer for your stimulus check to arrive. That's likely because the IRS mailed your stimulus money to the tax preparation company you used to file taxes.

The check is on the way

On Friday, TurboTax began distributing the stimulus payments mistakenly sent their way. If you are a TurboTax customer, check your bank account. You may find that your stimulus money has already been deposited. If not, TurboTax plans to make deposits into the bank account listed on your 2019 taxes. If you've changed banks since receiving your last stimulus check, your old bank is legally required to return the funds to the IRS. If that's the case, you'll need to wait until you file your 2020 tax return to provide the IRS with your new account information. If you're eligible for a $600 stimulus check, you can file a Recovery Rebate Credit claim at that time (line 30 of Form 1040 or 1040-SR).

Taxpayers who filed using TurboTax in 2019 were not the only ones impacted by the payment glitch. Customers of H&R Block, Jackson Hewitt, and other tax preparation services experienced the same delay in payment, and for the same reason. Tax preparation companies across the country were quickly apprised of the situation and are working with the IRS to get money to the rightful recipients.

What happened

If you find yourself caught up in the snafu, it is likely because you opted to pay the tax preparation fee out of your expected refund. It worked like this: You completed your return. Before you filed the return with the IRS, you were required to pay the tax preparation. You had two options: Cover the fee up front or allow the tax preparation service to receive your refund, subtract the service fee, and send the remainder on to you.

Once you permitted them to deduct their fee from your refund check, they opened a temporary bank account to receive the funds. And this where the problem arose. In a typical year, unimpacted by a global pandemic, this temporary account would have represented business as usual. Once the company deducted the fee and sent the remainder of the refund to you, they would have closed the temporary account set up to receive the refund.

According to the IRS, the glitch resulted from the speed at which they are required to distribute stimulus checks. As part of the $900 billion relief bill passed in December 2020, the Treasury Department was given until Jan. 15 to get all payments out the door.

Progress

It's in the best interest of tax preparation companies to maintain the confidence of their customers. That may be why they jumped on the problem once it was discovered and say they are working closely with the IRS to rectify the issue. TurboTax is not the only company to be on the ball. H&R Block customers in the same position began receiving their stimulus payments last week.

What to expect

If you're one of the estimated 13 million Americans caught up in the saga of misdirected stimulus checks, continue to check your bank account or mailbox. If you received your first stimulus check via mail, you will receive the second stimulus payment the same way. You can expect either a paper check or prepaid debit card worth $600 per eligible member of your family. The IRS advises people to keep an eye out for a plain, white envelope. That piece of mail that passes as junk at first glance may be the stimulus payment you've been waiting for.