IRS refunds

[artisgam]

I have had several clients refund reduced before being direct deposited without any explanation from IRS.

Anyone else experiencing this?

[PATAX]

I cannot ever recall this happening... I believe if the amount is reduced it is because of an outstanding debt of some kind... Just my opinion

[The-Tax-Lady]

Not yet. Does the IRS "Refund Status" website have an explanation for the offset, provided it's working.

[rbynaker]

My first two guesses:

1) RRC recalculation

2) The filed returns had an amount in Schedule 3 box 12e but were claiming a refund.

[The-Tax-Lady]

Your client will receive a letter from the Treasury Offset Program explaining why the refund was offset.

[sjrcpa]

Or an explanation of why the return was changed. Direct deposit of refunds is much quicker than getting a letter in the mail these days.

[Just-Lisa-Now-]

The deferred SE taxes have been tripping people up...if youre getting a refund, you cant defer the SE taxes, they reduce the refund instead.

[jc1628]

So far only one instance of this, a client with a new child born in the fall of 2020 had their refund decreased by exactly $500. I am anticipating them receiving a very late letter saying maybe they did not qualify for the first stimulus payment of $500 per dependent. This has not happened for any other clients with newborns in 2020 so maybe an outstanding obligation for $500 is just a coincidence. But all my research says that the child does not need to born prior to the CARES Act date to get the both stimulus payments. 

[artisgam]

WHERE IS MY REFUND HAS NO MENTION OR EXPLANATION

[qbteachmt]

This would not be an issue: "maybe they did not qualify for the first stimulus payment of $500 per dependent."

Because there is no Splitting of 2020. What matters is, on the 2020 form, the amounts you were entitled to or not (no splitting of 2020) against amounts paid in advance.

If the child qualifies and was born at any time in 2020, they are eligible for the $500 and the $600 as long as their other qualifications (filing status, income) are met. Just like anyone dying on Jan 1 or any date in 2020 is still considered eligible for the amount, as long as the other qualifications are met.

There is no splitting 2020. That tax return is the reconciliation of what they got, against both amounts that they qualify for. Not against each amount. You cannot qualify for only 1 of these, in 2020. Of course, you might have gotten only one of the amounts in advance.

[jc1628]

I completely agree. I just received a letter from the IRS that said the EITC & HOH supporting documents that a client submitted in Oct 2020 were received but misplaced by accident. They are so sorry but all documents will have to be resubmitted so now I longer know what to expect in IRS correspondence. 

[qbteachmt]

https://www.irs.gov/refunds/tax-season-refund-frequently-asked-questions

"Why is my refund different than the amount on the tax return I filed? (updated 2/5/2021)

All or part of your refund, including any amount for the Recovery Rebate Credit, may have been used (offset) to pay off past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or other federal nontax debts, such as student loans. To find out if you may have an offset or if you have questions about an offset, contact the agency to which you owe the debt.

We also may have changed your refund amount because we made changes to your tax return. This may include corrections to any incorrect Recovery Rebate Credit amount. You’ll get a notice explaining the changes. Where’s My Refund? will reflect the reasons for the refund offset when it relates to a change in your tax return.

Tax Topic 203, Refund Offsets for Unpaid Child Support, Certain Federal and State Debts, and Unemplo... has more information about refund offsets."

[qbteachmt]

Here's the reason it would be reduced in reference to SE deferral. That's not a Creditable Refund; it's a deferral for something not yet paid, so it isn't also considered past due.

It's part of parity for the Self-employed to be treated as employers are treated for the Form 7200 provision.

"Employers that have already deposited all or any portion of the employer's share of Social Security tax during the payroll tax deferral period may not subsequently defer payment of the tax already deposited and generate an overpayment of tax"

"Employers that have already paid the employer's share of Social Security tax on wages during the payroll tax deferral period may not subsequently defer the payment of the tax"

Remember that SE = both an employer and an employee for purposes of the Social Security tax.

[artisgam]

So is noted somewhere in the program

[iveteran23]

I'm having this problem also.  Almost all of the refunds were reduced

[dkh]

What did all the returns with reduced refunds have in common ?  Recovery Rebate Credits,  Deferred SE tax ??

[catty0405]

I am having the same issue and I can't find a commonality in the returns.  I have self employed who didn't get enough RRC, some that received too much RRC and the correct amount of RRC and also straight up W-2 clients with the RRC being correct, over and under.  The one W-2 client told me today his was off by $161.13 and has worked for the same major corporation for many years, so I know we didn't miss anything. His first RRC was short, so I suspect the IRS adjusted it further, but why isn't ProSeries picking this up?

I had only one return that when I went back in ProSeries had detected a change or update so it highlighted the difference since it was filed prior to an update.

The other part that is hard to pin down is that I suspect these clients are getting paid interest since the amount include some change so I can't tell exactly the amount of the difference and the interest.  

I am shocked there isn't more on this topic in ProSeries and it is embarrassing and difficult to tell clients 
"I don't know".

I only had one client get a letter from the IRS and it was very general about the change and we still don't know.  He is well below the limits for his RRC to have been adjusted.

Waiting on letters from the IRS--I guess???

[dkh]

IRS is a mess in my opinion.  My experience in past years, client would have received the letter about an adjustment before the refund was issued.  This year I had a client receive letter nearly two weeks after refund was direct deposited.   This client - like many others - believes I should know this adjustment happened and why it happened without ever seeing the letter.   I agree it is difficult to tell clients  "I don't know" but it is an honest answer.  

[qbteachmt]

"I have self employed who didn't get enough RRC, some that received too much RRC and the correct amount of RRC and also straight up W-2 clients with the RRC being correct, over and under. The one W-2 client told me today his was off by $161.13 and has worked for the same major corporation for many years, so I know we didn't miss anything."

RRC is not related to employment. Perhaps you are confusing this with ERC? Dang acronyms.

The self-employed person who attempts to defer SE but has enough paid in (through estimates or whatever) will not be refunded the deferred SE. That's about the only way employment relates to RRC.

"His first RRC was short,"

Because the amount was only a projection.

"so I suspect the IRS adjusted it further,"

The 2020 tax form is based on actual credit qualified for, against the prepayment. It isn't further adjusted. It is what it is, computed.

"but why isn't ProSeries picking this up?"

Have you confirmed that what they already got is what they told you and what you entered?

Did you have them get their Tax Account Transcript?

"I suspect these clients are getting paid interest since the amount include some change so I can't tell exactly the amount of the difference and the interest."

That's going to be listed in the transcript.

"and it was very general about the change and we still don't know. He is well below the limits for his RRC to have been adjusted."

The transcript is the place to start. You and the taxpayer can both know.

[The-Tax-Lady]

The IRS is a mess, but considering they are being told to load 100 tons of stuff, from various piles, into a 50 ton truck, with a child's sand shovel, I'm not relying on their administrative services much this year.

qbteachmt has the only solution that works, "Get the Transcripts". Unfortunately, the CAF unit is also overwhelmed with Authorizations and POA's so It's not a quick remedy.

"Wish I knew or could find out for you", is my reply, at this point, to the client questions that cannot be answered by simply reviewing the file. Then I suggest they sign an 8821 so I can find out the answer and, that it will probably be 2022 by the time I get that answer. Nobody's very happy, including me, but it's where we're at with TY2020.

So glad I chose to retire at the end of 2021. TY2021 is going to be an ugly beast, IMHO.

[Just-Lisa-Now-]

The 2020's are going to be a rough decade for preparers, buckle up and hang on, were in for one helluva ride!

[dkh]

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@The-Tax-Lady wrote:

So glad I chose to retire at the end of 2021. TY2021 is going to be an ugly beast, IMHO.

---

  Enjoy whatever your new passions in life will be starting in January!    

[Johnmars]

Yes, it happens. I had a similar situation. Sometimes, in order to return the overpaid taxes, you need to contact the tax company after a while. Usually after receiving the W2 form. You can come with your W2 form and prove that you have paid more taxes than you owe, then they will probably be reimbursed to you, but most likely they will be deducted from the amount of the following tax deductions. You will be able to estimate the amount of tax payments on the W2 form online at https://www.thepaystubs.com/w2-form-generator to find out how much money you can return. But this will not work if you live in a state where tax-exempt organizations must pay taxes on their own goods.

[qbteachmt]

"Maybe you should contact the tax service?"

Start with the tax account transcript. That's why it is available. It is available through online access, so no mailing forms or faxing forms and no waiting period. No being on hold while someone gets to your phone call.

[The-Tax-Lady]

Thank you so much. Once I get TY2020 closed out, if that ever happens, I will be giving some serious thought as to whatever that passion will be.:)