As a result of the passage of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27 th , the IRS has moved quickly to send Economic Impact Payment to eligible individuals. Despite its best efforts, the IRS has inadvertently issued payments to ineligible individuals, including recently deceased taxpayers, or may have issued payments for incorrect amounts. Before you cash a stimulus check for a deceased relative, or spend stimulus funds erroneously sent to you, here’s what you should know.
Understanding the Recovery Rebate Credit
Economic Impact Payments (“Payments”) are a prepayment of a new Recovery Rebate Credit that applies to tax owed for the 2020 tax year. The credit’s starting point is $2,400 plus $500 for each qualifying child for married taxpayers filing jointly and $1,200 plus $500 for each qualifying child for all other taxpayers. The credit is reduced by 5% of the amount your adjusted gross income exceeds $150,000, in the case of a joint return; $112,500, in the case of head of household; and $75,000 for all other taxpayers. Nonresident aliens, dependents, and estates and trusts are not eligible for the credit.
Effect of the Economic Impact Payment on Your 2020 Recovery Rebate Credit
If an eligible individual receives a Payment in excess of the amount of the credit the individual is entitled to claim on their 2020 tax return, either because income has increased or other circumstances have changed, the eligible individual is not required to return the excess. But, payments made for a recently deceased spouse or child, or to other ineligible taxpayers such as non-resident aliens or incarcerated individuals, will need to be returned. On the other hand, if you are entitled to a credit in excess of the Payment you receive, you will be able to claim this credit when you file your 2020 tax return.
Payments Issued to Deceased Taxpayers
The IRS recently clarified that deceased individuals are not eligible to receive Payments. Based on the FAQs, this appears to be determined based upon receipt of the Payment – in other words, whether the individual was alive when the Payment was received. Payments erroneously issued to deceased individuals should be returned to the IRS. In its FAQs , the IRS provides instructions for returning payments by either voiding the check that was received but not deposited, or by repaying funds you deposited or that were direct deposited. The Internal Revenue Code gives the IRS the authority to pursue civil lawsuits to recover erroneously issued refunds. If you do not return a refund that was erroneously issued to a deceased taxpayer, the estate could be sued by the IRS for the amount of the Payment plus interest.
If you receive a Payment for an ineligible individual, follow the IRS instructions for returning the payment. If you received an excess Payment that you do not need and you are certain you will not need to repay, you can gift it back to the U.S. government as a general gift or to reduce the public debt , through pay.gov . You can also make a donation to your state or local government or favorite charity. Contributions to qualified charities, state and local governments, and the U.S. government made during 2020 may be deductible when you file your 2020 taxes. Under provisions of the CARES Act, you may be eligible to deduct up to 100% of your adjusted gross income for charitable contributions made in 2020 when you itemize deductions, or up to a $300 deduction for charitable contributions if you do not itemize.
If you need any assistance or have any questions, please contact your Hall Estill Attorney directly.