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Getting COVID-19 financial relief to millions of Americans in need requires a multichannel strategy

Donald Hammond (formerly at US Treasury Department) and David Wilcox (PIIE)



The US Senate has come to agreement on a giant coronavirus (COVID-19) rescue package, and final Congressional approval could come very rapidly. One key element of the bill is cash payments to American households. Checks of $1,200 for adults and $500 for children will be sent to well more than 100 million Americans, providing palliative relief to some recipients.

But the mechanics of how these payments are made will do much to determine whom they go to and how effective they prove to be. Reports of the draft legislation indicate that these payments will be made based on information from the income tax system. If that is the route taken, millions of Americans most in need will not receive any aid from this element of the package.

In all likelihood, these one-time cash payments to households will fall far short of what is needed to cushion the blow of the economic collapse. The bill up for Congressional approval also includes a substantial expansion of the unemployment insurance system. That expansion may prove to be the more important source of financial support for hard-hit American households.

Getting one-time cash payments out to so many households at breakneck speed will not be easy. No set of existing financial pipes was designed for a crisis requiring payments to more than 100 million individuals or households within days or weeks. Policymakers need to be realistic about this challenge.

To best meet this challenge, and reach as many Americans of modest means as possible, the government should employ multiple channels, including the income tax administration system, the Social Security benefits system, and other federal assistance programs. If multiple systems are used to define eligibility for relief payments, policymakers will face a choice: Either they tolerate the possibility that some people will receive multiple payments (giving rise to the inevitable charge of “double-dipping”) or they require civil servants charged with administering the disbursements to force the different information systems to communicate with each other. We urge policymakers to emphasize the need for speed. Unless the cross-checking could be carried out very quickly, it should be avoided. In most cases, the people who receive multiple payments will be at the lower end of the economic ladder and thus likely to be in greatest need of help.

Using the tax system to make COVID-19 relief payments

The Internal Revenue Service (IRS) infrastructure is the most obvious choice as the platform for making COVID-19 relief payments. After all, it was used to make similar payments in 2001 and 2008. And indeed, it will be possible to make many payments through this system quickly, but completing the process will inescapably take longer than proponents say. Moreover, many low-income and vulnerable households will receive nothing if the income tax system is made the only basis for determining eligibility for relief payments.

Making payments by way of the tax administration system will not be easy. To the extent possible, parallel teams should be set up to work through the challenges that will arise in getting payments to different classes of recipients:

  • The easiest category of recipients includes those who filed a tax return for 2018, were owed a refund, and requested that the refund be paid by direct deposit. The failure cases will be those who have changed banking relationships since filing their 2018 returns.
  • For other eligible recipients, the best available strategy appears to be to mail checks to the addresses on their 2018 return. The failure cases will be those who have since moved.
  • Everyone who filed a return for 2018 should be eligible for a full relief payment, with no minimum income requirement. Such a requirement would be essentially guaranteed to hit many in greatest need. (Early versions of the Senate legislation reportedly earmarked smaller relief payments for filers with very low incomes.)

Why disbursal based on the tax system will be difficult and incomplete

Many difficulties will impede efforts to make payments using the tax-based system.

  • The deadline for filing 2019 returns has been pushed back to July 15, 2020. Thus, the IRS has not received and processed many 2019 returns, so COVID-19 relief payments will likely have to be made based on 2018 tax year returns. The IRS received roughly 155 million individual income tax returns for 2018.
  • Only about 85 percent of all “tax units” filed returns for tax year 2018.[1] Most nonfilers have very low income; higher-income earners are generally legally obligated to file a return. If the bill ultimately signed into law defines eligibility for COVID-19 relief payments based solely on whether an income tax return was filed for 2018, roughly 15 percent of the population—most of them among the neediest—will receive no financial relief from this component of the package. In tax year 2010, an estimated 22.9 million individual nonfilers had income of $20,000 or less.[2]
  • In tax year 2018, 73 percent of returns claimed a refund. Many of these refunds were paid electronically, and the government will be able to use the same information to make a relief payment. However, in some cases, taxpayers will have changed financial institutions since filing their 2018 return. Getting payments to these taxpayers may be difficult. Taxpayers who received refunds nonelectronically will probably get relief checks mailed to them; but some of them may have since moved, which would also make delivery difficult.
  • Some taxpayers who owed a final tax payment to the government for tax year 2018 made that payment electronically. In these cases, assuming the taxpayer still banks with the same institution, the government should be able to use the information supplied with the 2018 return to send a relief payment. Other taxpayers, however, did not provide bank information. Checks will probably have to be mailed to this latter group; but some of these individuals may have since changed addresses, making delivery yet more challenging.
  • Some Americans have no relationship with a formal-sector financial institution. The extent to which this fact creates additional challenges in delivering payments is difficult to know because the “unbanked” are concentrated at the low end of the income distribution. Therefore, they might not have been required to file a return for 2018, and so might not have been eligible for a refund anyway, if eligibility for COVID-19 relief payments is defined solely on tax data.
  • As noted earlier, for some of those getting relief payments by check, addresses provided on 2018 returns will no longer be current. In addition, Treasury printing and mailing capacities have been reduced in the last decade or two as the department has migrated toward direct deposit, which could cause delays.

How to reach those who will not be eligible under the tax-based system

One approach to reaching more individuals—especially those at the bottom of the income distribution—would be to pursue multiple channels in parallel even at the risk that some people will receive multiple payments. Trying to limit multiple payments by having different information systems “talk” to each other will probably have to be resisted as impractical because these systems were not designed to communicate seamlessly with each other.[3] Most Americans who receive multiple payments will tend to be lower-income individuals. The risk of giving them “too much” aid seems exceedingly low.

The channels in addition to the tax administration system that we recommend include at the least:

  • Social Security retirement, Supplemental Security Income, and disability benefit recipients,
  • Supplemental Nutrition Assistance Program recipients (commonly referred to as “food stamps”),
  • Temporary Assistance for Needy Families (TANF) recipients, and
  • Veterans benefits recipients.

Advantages of a revamped unemployment insurance system

Given the severity of the crisis, one-time payments to households—whether delivered by way of the tax system or multiple channels—will be inadequate. Therefore, it is encouraging to see reports that the Senate bill will also include a significant expansion of the unemployment insurance (UI) system. Eventually, there may be a need to do even more.

The UI system has some major advantages over the tax administration system as a platform for delivering financial support to stressed households. Among these advantages are the fact that the UI system already maintains current individual information. In addition, the federal government has an existing process to reimburse the states for the cost of any federal supplement. Still, depending on the details of the pending legislation, the UI system could leave important gaps unfilled, including the following:

  • Individuals whose income is reduced but who do not experience unemployment might not be covered.
  • Self-employed persons will not be covered unless the filing process is adapted to permit them to file for at least the federal supplement.
  • Nonworking individuals such as retirees or children will not be covered.
  • If the COVID-19-related expansion defers to state rules, part-time workers will not be covered in some states.

It is important that these shortcomings be rectified. In particular, the program should be retitled “income insurance,” to make abundantly clear that, at least for the duration of the health crisis, being laid off will not be a precondition for eligibility. Parameters like the following should be adopted:

  • In its expanded incarnation, the program will replace 75 percent of the reduction in earned income, up to a maximum combined income (earned plus insurance benefit) of $62,000, which is the median US household income).
  • With unemployment no longer a precondition, someone whose income was cut from $100 in the same period last year to $30 this year would receive an income insurance payment of $52.50 (= 75 percent of $70) from this program, up to the stated maximum income (combined earned plus received from the insurance program) of $62,000 annually.
  • Individuals in this example would have an incentive to remain employed even at reduced hours, because they would keep 100 percent of the $30 their employer was still paying them, up to the income cap.

Recent media reports have suggested that the capacity of the UI system is being overwhelmed.[4] And as Quoctrung Bui and Justin Wolfers noted, a vastly larger number of claims will be reported on March 26, 2020.[5] These issues of administrative capacity are real. Maximum assistance must be offered to state administrators to help them build surge capacity into their systems.

No perfect vehicle exists for the delivery of a massive amount of financial assistance to the roughly 130 million households in the United States. But every effort must be made to employ multiple systems to ensure that no one who needs help is left out.


1. A tax unit differs from a household. For example, two unmarried adults living together could be one household, but two tax units, because each adult would be likely to file their own tax return if their income were high enough. The Tax Policy Center’s estimates of the number of tax units and filers are available here.

2. James Cilke, The Case of the Missing Strangers: What we Know and Don’t Know About Non-Filers, Joint Commission on Taxation, US Congress.

3. Some others are more optimistic about the feasibility of cross-checking to avoid receipt of multiple payments. If cross-checking is feasible quickly and policymakers prefer to avoid having individuals receive multiple payments, we have no problem with it.

4. For example, according to a March 17, 2020, article in Politico, “During the past 48 hours, unemployment insurance offices around the country were flooded with phone calls, and state unemployment websites crashed in Kentucky, Oregon, and New York.”

5. According to Quoctrung Bui and Justin Wolfers, nearly 630,000 claims were filed on March 19 in just 15 out of the 50 states, suggesting that the national total reported on March 26 will be much larger.

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