IRS Holding EIP payments

[kirkavery]

The taxpayer's spouse died in December, 2019.   He received both $1,200 payments in April 2020.  He understands he needs to return the $1,200 to the IRS for his spouse but as of March, 2021 he has not yet returned the overpayment.

Taxpayer did not receive EIP 2 for $600.   I believe he can recover that via the Recovery Rebate credit worksheet when preparing his 2020 tax return.

Taxpayer is convinced he did not get EIP 2 because he received the overpayment for his wife who passed and the IRS will not give him EIP 2, or the 2021 EIP, until he returns the EIP #1 $1,200.

Taxpayer has also not received EIP #3 to date.   

I don't believe the IRS is holding EIP payments for a situation like this.   Has anyone had experience or seen guidance that the IRS is holding EIP payments in situations like this?

[qbteachmt]

The taxpayer is confused.

Perhaps it would help to review what is really happening for EIP “stimulus” funds: The funds were paid out as Advanced payment against a projection. The first two payouts were projected based on 2018 or 2019 tax returns, but the eligibility is part of tax year 2020 as Actuals. You use the 2020 return to reconcile what a person is entitled to, against what they got.

If the person is not a dependent in 2020, then they would be eligible for consideration as individual filers. That doesn't mean "not being claimed." It means "no longer qualifies as a dependent." You must correctly address whether they Can be Claimed as a dependent on someone else’s tax return.

The third payout which started in Jan 2021, has different eligibility rules as to dependents and this payout is a projection, using 2019 or 2020 tax returns, then reconciled against Actuals on the 2021 tax return.

You might want to bookmark these links and read the IRS guidance.

Interactive wizards portal includes one for determining dependency:

https://www.irs.gov/help/ita

And:

https://www.irs.gov/newsroom/economic-impact-payment-information-center-topic-a-eip-eligibility

https://www.irs.gov/coronavirus/second-eip-faqs#Eligibility

https://www.irs.gov/newsroom/irs-is-issuing-third-round-of-economic-impact-payments

One for each of the three EIP “stimulus” payments.

[kirkavery]

Thanks for your response.  I think I understand the rules around EIP payments.   The question is whether the IRS would hold future EIP payments if the first EIP overpayment was not returned.  I have not found anything in the all the literature that addresses this question. 

[qbteachmt]

We would assume the first EIP was paid out before the 2019 tax filing got processed in 2020, showing the date of death for the spouse was in 2019. And it is possible the second payout didn't happen at all, taking the first payout into consideration.

He hasn't returned that check, which is what the IRS announced should be done back then, for people not alive in 2020.

The IRS has info for when an EIP might be "garnished" and I have never seen that one; the wording is different for each EIP.

 Have you filled in the 1040 showing that for 2020, he got more than he is entitled to? The 2020 tax form is supposed to be the reconciliation.

[kirkavery]

Yes, he had not filed his tax 2019 tax return showing his wife as deceased until after he received both $1,200 payments via direct deposit.

The recovery rebate credit worksheet is not set up to return overpayments.  I assume because if your stimulus payments were based on 2019 income and your income increased in 2020 to the level you would not be eligible, the IRS guidelines say the funds do not have to be returned.

[TAXOH]

I have a widower a similar situation.  Her husband died in 2018 and a return was filed showing him as deceased. She wasn't required to file a return in 2019 so nothing was filed.  She received EIP1 for her and him.  She did not receive EIP2 and so far has not received EIP3. 

[jeffmcpa2010]

There is legitimate arguments about whether the IRS position re: the spouses $1200 needs to be returned to the IRS. (Or any other decedent for that matter.) I would not want to be in a position of telling a client to send it back, when they may not be legally required to do so.

Here is a quote from a news article 

"“People may have returned it, but they didn’t need to,” said Nina Olson, the former head of the Taxpayer Advocate Service, an internal IRS watchdog. The same goes for the $1,200 stimulus payments, as far as Olson sees it. The CARES Act stimulus bill contained no “clawback” provisions for stimulus checks sent to a dead person, meaning the agency can’t retrieve the money after it’s been handed out, she said. “Congress didn’t write around that this year,” she said."

[kirkavery]

Yes, it is an "interesting" dilemma.   I have seen the arguments for both sides, the bill said overpayments did not need to be returned and no provision to pursue overpayments but the IRS issued guidelines the overpayments are to be returned and set up a special process for people to return the funds.

The taxpayer is 83 years old.  I am inclined to advise him to hold on to the wife's overpayment and wait for someone to ask for it back.  More than likely he won't be around by the time that happens as we know the IRS does not operate at warp speed, especially these days!

We will request EIP #2 for $600 on his 2020 tax return since he received zero and see what happens.