Overpaid EIP

[dkh]

I've decided to track how much EIP#3 was paid out to clients that would not have qualified for the $1400 had the government waited to give as a credit on the 2021. 

I've had several single taxpayers that received the $1400 based on 2020 income but do not qualify based on 2021 income. 

I have one family that was overpaid $4200.  2020 return was not filed before EIP#3 was issued so parents received based on 2019.  One dependent on 2019 was dropped from 2020 return and another dropped from 2021 return - overpaid $2800. The child dropped from 2020 return received $1400 but then 2021 income was actually over threshold - overpaid $1400.

[rbynaker]

But it's not really overpaid.  Congress wrote the rules and the IRS followed them (well, mostly).  If the rule was supposed to be "based on only 2021" then there could have been a claw-back (or even a limited claw-back based on AGI like the ACTC mess).

So it sounds like you're just tracking how much you think should have been paid had you been the one to write the tax law.

Rick (with a possibly biased opinion since my $1,400 was based on 2019--but if the rules had been different and I known that ahead of time I would have changed my 2021 Traditional/Roth 401(k) mix accordingly or waited until 2022 to cash out some capital gains.)

[dkh]

Agreed - technically not overpaid   

Agreed - tracking how much I think should have been paid had I been the one to write the tax law.

[rbynaker]

Don't get me wrong, I'm not thrilled about loopholes you can drive a truck through (especially if the truck has MFS written on the side of it) but Congress had every opportunity to learn from their "mistakes" on EIP1 and EIP2.  Best they could come up with for EIP3 was to direct the IRS to issue regulations.  But if you think about it, anything the IRS could have come up with for regulations would have (or at least could have) directly contradicted what Congress put in the law.  Who gets priority?  Either the party who got the advance--as directed by Congress in the law--or the party who now claims the RRC--as directed by Congress in the law.  If Congress had stated (or even hinted) that the one party had priority then regs could have specified how that gets handled on the tax return.  The IRS may come up with regs at some point (let's face it, they're about 20 months behind in getting anything done) but for the most part it's too late now, returns are already getting filed with (legal) double dipping.

[dkh]

After the family with $4200 overpaid (for lack of better terminology) - I'm curious to see what the numbers will be for just the returns I'm processing.   

Plain old curiosity is the driving force for me to track the $$$$.

[IRonMaN]

Good thing you are human because we all know curiosity killed that poor cat.

[rbynaker]

Dumb laws like this end up rewarding folks who waited until the last minute to file their returns.  Not something I think should be rewarded, but that's how the tax law was written.

You can literally take two people with identical financial situations.  Let's say both single with $70K of AGI in 2019 and $85K of AGI in 2020 and 2021.  Person 1 files their 2020 return in early February 2021 when efile opens.  Person 2 files an extension and files their 2020 return in mid-October 2021.  Person 1 is not eligible for EIP3 because they have a 2020 return on file with too much AGI.  Person 2 gets $1,400 because it's based on 2019.  Procrastinators win!

I had a stack of 2020 returns that were EIP3 eligible based on 2019 but over the limit based on 2020 income.  They were held until October just in case there were any EIP4, 5, 6, etc. laws passed.  I had a couple folks who wanted to go ahead and file early anyway but the majority of people who were in this situation (myself included) agreed to wait.  Turned out it wouldn't have mattered but nobody knew that at the time.

I had at least one client burned because we filed his 2019 return "too early" and he missed out on EIP1 (or maybe it was EIP2?)  He was pretty grumpy about it but I pointed out the "no stockpiling" rule where I'm required to file within 3 days of him giving me the signed 8879 (and it's not my fault Congress writes dumb laws).  Sorry, my crystal ball didn't tell me that Congress was going to write a law that retroactively penalized you $1,200 for filing your tax return "too early" in the season.

Rick

[qbteachmt]

"especially if the truck has MFS written on the side of it"

I see MFJ gets 3 EIP #3 letters. The first Joint letter came in April 2021 and notified them that they had $2,800 coming and to expect that. Two separately-named individual letters came in January 2022 and reiterated that they each got $1,400. No matter how you file, it's clear the IRS knows what you got. There is no divorced spouse going to be able to argue, "He got my money, so I want more."

[rbynaker]

Sure, but throw in a dependent or two (or five) and see how quickly the math changes.

2020 MFJ w/3 kids = $7,000 EIP split $3,500 TP and $3,500 SP because that's what the law says.

TP files 2021 MFS w/3 kids, gets $5,600 - $3,500 = $2,100 RRC.

SP files 2021 MFS w/0 kids pays back $1,400 - $3,500 = $0 because nobody has to pay anything back.