Your first or second round stimulus check cannot be taken away to repay taxes or other government debt you owe. Stimulation checks of the second round also cannot be decorated to pay overdue child support or money owed to private creditors or debt collectors. But what if you did not receive a stimulus check – or not the full amount – and you expect to receive the stimulus money to which you are entitled by claiming the ‘repayment credit’ credit on your 2020 tax return?
Unfortunately, thanks to a little-known provision in the COVID Relief Act passed in December, the protection does not apply to credits for recovery rebate. So if you get a refund of your 2020 tax return due to the credit, the IRS can take it away to pay off any child support, taxes or other government debt you owe. Banks and other creditors and debt collectors can also get your repayment.
The IRS is aware of this situation and can provide relief. Congress can also step in and change the law. But for now, the repayment of any tax refund is possible, even if the repayment is entirely based on the repayment credit.
[Stay on top of all the new stimulus relief developments – Sign up for the Kiplinger Today E-Newsletter. It’s FREE!]
Stimulus checks against recycling card credits
Stimulus checks are actually just prepayments of the repayment rebate, which is only available for the tax year 2020. So if you calculate the credit amount on your tax return, you have to deduct the combined total of your two stimulus checks (if you assume you get it). If you still have credit left over after deducting your stimulus checks, it will lower your tax bill, cause a tax refund, or increase your refund. If the amount of your two stimulus checks is equal to or more than the amount of the credit, you do not have to repay the difference.
The amount of each stimulus test and the amount of your repayment credit are usually calculated in the same way. However, the IRS relies on different sources of information to determine the amount of each – this is one of the reasons why the two amounts may be different. For stimulus checks, the IRS has mainly looked at your tax return for 2019. If you have not submitted a 2019 return, they are looking for a 2018 return to calculate the first round payments. If you did not file a 2018 or 2019 return, the IRS may have obtained the necessary information from a special online portal for non-applicants or from a government agency that pays you benefits, such as the Social Security Administration or Department of Veterans Affairs.
There are other reasons why the combined total of your two stimulus checks and your credit recovery discount is not equal. For example, if you had a child in 2020, the extra amount of $ 500 or $ 600 on the Stimulus Checks for Qualifying Children would not appear on your two Stimulus Payments, but the extra amounts will be charged to your credit for recovery rebate . For some Americans, their stimulus checks have been reduced because of their income for 2019, but due to lost income in 2020, their repayment credit will not be reduced. Many people did not receive one or both of their stimulus checks simply because the IRS did not have enough information to process a payment for them. Prisoners were illegally denied their payments in the first round, but the correct amount is included in their tax credit. There are many other situations that can cause a positive recovery credit, including that the IRS simply got confused and sent you a stimulus test for the wrong amount.
Are Credit Guarantees for Repair Discount Unfair?
Due to the tax legislation passed in December, ‘the carpet is being pulled out among suitable individuals with outstanding debt’, Erin Collins, national advocate for taxpayers, said in a recent blog post. “Since the spring, the IRS has reassured these taxpayers that if they claim that the [recovery rebate credit] if they submit their 2020 return, they get the full amount of stimulus money they are eligible for and it is made whole. Now it appears that the assurance is inaccurate based on the law change. ‘
According to Collins, this is the current situation:
-
People with certain outstanding debts who received the full amount of their stimulus checks were not subject to the decoration (except due to child support for payment in the first round)
-
People with similar outstanding debts who have not received the full amount of their stimulus checks will receive a reduced credit line or nothing at all if they claim it on their 2020 tax return.
“This divergent result undermines public confidence in the fairness of the tax system,” Collins said. “Taxpayers who are struggling financially, which is the full amount of the [stimulus check] last year, but was not once effectively harmed. It is unfair to harm some of these taxpayers a second time by seizing some or all of their stimulus payments. ‘
Possible solutions
Congress was able to reverse and reverse the December change so that the garrison security allowed for stimulus checks is also applied to the credit for recovery rebate. We have not yet heard that this adjustment was included as part of President Biden’s $ 1.9 billion stimulus package, but perhaps it will be added.
If Congress does not act, the IRS could still offer limited relief on its own. Under the tax agency’s rarely used Offset Bypass Refund (OBR) process, people with an economic hardship may ask the IRS to withhold their tax refund to repay tax debt. Collins wants the IRS to use the OBR process to cancel credit loans without offsetting them for federal tax debt (however, this will not work for other types of debt).
Collins also supports the U.S. Bar Council’s recommendation to automatically apply the OBR procedures to any offsetting federal tax debt for Americans with an annual income below 250% of the applicable federal poverty level. According to her, the taxpayers, who do not have to go to the IRS and ask for the waiver, would be easier to automate the process for everyone, and the IRS, which does not have to process a large number of OBR requests . a case-by-case basis. The ABA also recommends that an automated OBR process be used for anyone claiming an income tax credit on their 2020 federal tax return, and taxpayers who have a compromise offer in 2020 or 2021.
The IRS is investigating this issue and is investigating ways to exercise its discretion to help vulnerable taxpayers, according to Collins. However, with the filing of tax season on February 12, there is not much time to act. We will report any changes that have been made … so keep an eye out.