Big Challenges Stand in the Way of IRS Tariff Dividend Rebates

Don’t go making plans just yet to spend the $2,000 tariff “dividend” rebates President Donald Trump has proposed for millions of Americans.

The proposed payments to lower- and middle-income taxpayers are aimed at addressing widespread concerns about higher consumer prices caused by Trump’s sweeping tariffs on goods from many nations. But beyond debates over whether the payments are a good idea, a host of logistical issues must be addressed before they can show up in Americans’ bank accounts—ranging from who should authorize them to whether the IRS can handle the necessary work.

The IRS already is dealing with a “moment of turbulence,” between multiple leadership and staffing changes and other challenges, and adding on the responsibility of issuing tariff rebates “would be very ill-timed,” said Erica York, vice president for federal tax policy at the Tax Foundation.

Some believe the agency is up to the task. The IRS’s workforce is “highly dependable” in the face of operational challenges, and “will get the rebates issued in a manner that should not significantly interfere with other IRS operations,” said Chuck Rettig, a shareholder at Chamberlain Hrdlicka who served as IRS commissioner in Trump’s first administration.

The government will have to address these logistical issues to get Americans any payments from tariff revenues.

Congressional Approval

Congress has the power to control government spending under the Constitution, but a White House official suggested Tuesday that the administration was looking for ways to make the tariff-dividend payments without congressional approval.

Such an approach would invite controversy and perhaps legal challenges. Even the official, Deputy White House Chief of Staff James Blair, acknowledged that the “most likely outcome is, it requires an act of Congress.” Treasury Secretary Scott Bessent has also said the payments would require legislation.

More Work for the IRS

The IRS’s workforce has shrunk by more than 26,000 employees since Trump took office—more than 25%—and many senior leadership positions are vacant or without a permanent leader, including the commissioner’s job. The agency is also trying to implement the giant GOP tax-and-spending law enacted in July.

The need to prepare for the upcoming tax-filing season that starts in January will only exacerbate the problem. As usual, the agency must prepare its systems and update its forms, but it’s already having to play catch-up on those efforts because of the federal government shutdown that ended only last week.

Many of the stimulus checks the government sent to taxpayers during the Covid-19 pandemic—the closest recent parallel to the tariff-dividend payments—also were sent during tax-filing season, in 2020 and 2021.

Still, Rettig said, “It would obviously be preferred to issue tariff rebates outside of the upcoming filing season.”

Electronic Payments

The IRS has gone all-electronic on refund payments, phasing out paper checks after a Trump executive order in March required agencies to do so. That could affect lower-income taxpayers who disproportionately don’t have access to banking services and have relied on paper checks—the people who would benefit the most from a $2,000 tariff dividend payment.

The IRS and the Treasury Department haven’t hasn’t indicated how they would handle tariff dividends, and spokespeople didn’t immediately respond to requests for comment. But the agency has said in the past that taxpayers who are due refunds but don’t have access to bank accounts will have options available like prepaid debit cards or digital wallets, and that limited exceptions to the no-paper-checks requirement will be made.

Rettig noted that the government successfully issued hundreds of millions of pandemic stimulus payments electronically, and issues millions of refunds on the earned income tax credit to lower-income taxpayers each year without problems.

The Supreme Court Conundrum

Hanging over the entire tariff-dividend discussion is a pending US Supreme Court decision on whether Trump illegally used emergency economic powers to impose the bulk of his tariffs.

A ruling against Trump would mean the government may have to repay enormous sums to companies that were assessed the tariffs. That may leave the government short of the revenue it’s expecting to use for the dividend payments, though Trump may be able to use other laws to impose the tariffs if they’re struck down.

Some conservative justices appeared skeptical of the administration’s position during oral arguments in the case earlier this month. A ruling could come as quickly as the end of the year.