Nearly 85,000 Inmates Entitled to Stimulus Checks; Judge Finds Exclusion Is 'Likely Contrary to Law'

After the Internal Revenue Service deemed incarcerated individuals ineligible for a stimulus check, a judge found the agency was most likely doing so against the law and ruled it must reissue payments that were previously denied or forcibly returned.

Nearly 85,000 incarcerated individuals received payments worth $100 million, according to a report from the Treasury Inspector General for Tax Administration (TIGTA). After issuing the payments, the IRS instructed anyone who received them to either repay the direct deposit or return the voided check, as they were made in error. But the federal judge ruled on September 24 that incarceration status doesn't disqualify a person from receiving a stimulus check.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, which was passed unanimously in Congress and was signed into law in March, provided for $1,200 payments to individuals and $2,400 to joint filers. Aside from the income threshold, the CARES Act identified an "eligible individual" as anyone other than a "nonresident alien individual," a person who is claimed as a dependent on another person's tax return, or a trust or estate.

"Incarcerated persons who otherwise qualify for an advance refund are not excluded as an 'eligible individual,'" U.S. District Judge Phyllis Hamilton wrote in her ruling. "The IRS's decision to exclude incarcerated persons from advance refund payments is likely contrary to law."

stimulus checks incarcerated
President Donald Trump's name appears on the coronavirus economic assistance checks that were sent to citizens across the country in the spring. On September 24, a federal judge ruled that incarcerated individuals who are eligible for a check cannot have their payments withheld. Chip Somodevilla/Getty

Hamilton's ruling came about three months after a lawsuit was filed on behalf of Colin Scholl and Lisa Strawn challenging the IRS' decision to deem incarcerated individuals ineligible for payments. In it, they requested class status for those who were incarcerated from March 27 and an injunction requiring the IRS to automatically issue payments to those incarcerated people who are eligible. Along with the injunction, Hamilton also granted the plaintiffs' the class status.

This isn't the first time the issue of whether incarcerated individuals qualify for a stimulus check has arisen. In 2009, stimulus checks worth $250 were sent to some incarcerated individuals as part of the American Recovery and Reinvestment Act (ARRA). Of the 3,900 incarcerated individuals who received payments, 2,200 of them got to keep their checks because the law contained language allowing them to, the Associated Press reported at the time.

Under ARRA, people receiving certain federal benefits were eligible for a payment if they received the benefit within the three months before the package's enactment. While incarcerated people are generally ineligible for federal benefits, if a person wasn't incarcerated in the three months before the package's enactment, he or she would have still been eligible for a stimulus check, Mark Lassiter, a spokesman for the Social Security Administration, told the AP.

In the IRS' own words, such people can be eligible more than a decade later. When the initial 84,861 payments were made, TIGTA questioned IRS management about the decision, according to the lawsuit. At the time, the IRS noted that "payments to these populations were allowed because the CARES Act does not prohibit them from receiving a payment."

Hamilton issued a preliminary injunction requiring the IRS to reconsider payments that were issued but taken back and reconsider previously denied claims that were filed through the non-filer tool on the IRS's website. The agency has 45 days to file a declaration confirming the steps have been implemented.

As people still await their first payment, legislators are contemplating issuing a second round of stimulus checks. Democratic Party leaders and the White House have agreed on terms for that second round, according to Treasury Secretary Steve Mnuchin, and they largely echo those terms in the CARES Act.

Disagreements over other provisions of a possible relief package have prevented a bipartisan proposal from becoming law. But if the language used in the CARES Act is applied to a future package, it's possible incarcerated individuals will once again be eligible for checks.

Newsweek reached out to the Treasury Department for comment but did not receive a response in time for publication.