Your first or second round stimulus check might not be withdrawn to pay off taxes or other government debts you owe. Second-round stimulus checks could also not be seized to pay child support arrears or amounts owed to private creditors or debt collectors. But what if you haven’t received a stimulus check – or haven’t received the full amount – and expect to get the stimulus money you’re entitled to by applying for the credit? recovery refund on your 2020 tax return?
Unfortunately, thanks to a little-known provision in the COVID relief law passed in December, most of these protections do not apply to recovery rebate credits. So, if you get a refund on your 2020 tax return because of the credit, the IRS can withdraw it to pay any child support, state taxes, or other government debts you owe. Banks and other creditors and debt collectors can also collect your refund.
The IRS is aware of this situation and has provided limited relief (that is, it will not reduce refunds to pay federal taxes owed by people who have claimed the recovery refund credit on their 2020 tax return). Congress could also step in and change the law. But for now, garnishing any tax refund you get this year is possible, even if the refund is based entirely on the recovery rebate credit.
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Stimulus checks are really just advance payments of the Payback Refund tax credit. As a result, when you calculate the credit amount on your 2020 tax return, you will need to subtract the combined total of your first and second round stimulus checks (assuming you got them). If you still have a credit left after subtracting those stimulus payments, it will lower your tax bill, trigger a tax refund, or increase your refund. If the amount of your stimulus checks is equal to or greater than the loan amount, you do not have to repay the difference.
The amount of each stimulus check and the amount of your Recovery Rebate credit are usually calculated the same way. However, the IRS relies on different sources of information to determine the amount of each – this is one of the reasons the two amounts might be different. For the first and second round dunning checks, the IRS primarily looked at your 2019 tax return. If you did not file a 2019 return, they looked for a 2018 return to calculate the first round payments. If you didn’t file a 2018 or 2019 return, the IRS may have gotten the information it needed from a special online portal for non-filers or from a government agency that pays you. benefits, such as the Social Security Administration or the Department of Veterans Affairs.
There are other reasons why your combined total of your first and second round dunning checks and your 2020 recovery rebate credit are not equal. For example, if you had a child in 2020, the additional $ 500 or $ 600 added to the first and second rounds stimulus checks for eligible children would not have appeared in your stimulus payments, but the additional amounts will be added to your recovery discount credit. Some Americans have had their stimulus checks reduced due to their income in 2019, but due to the loss of income in 2020, their recovery remission credit will not be reduced. Many people didn’t receive one or both of their first two stimulus checks simply because the IRS didn’t have enough information to process a payment for them. The inmates were illegally denied their first-round payments, but the exact amount will be included in their tax credit. There are many other situations that could trigger a positive recovery remission credit on your 2020 return, including the IRS simply messing up and sending you a stimulus check for the wrong amount.
Due to the tax law change in December, “the mat is being taken away from eligible people with unpaid debts,” Erin Collins, national taxpayer lawyer, said in a Jan. 28 blog post. “Since the spring, the IRS has reassured these taxpayers that if they claim the [recovery rebate credit] when they file their 2020 returns, they will receive the full amount of stimulus money they are entitled to and will be healed. Now that assurance is proving to be inaccurate on the basis of the change in law. “
Here’s the situation, according to Collins:
- People with certain unpaid debts who received the full amount of their stimulus checks were not garnished (with the exception of overdue child support for the first round payments. ), corn
- People with similar delinquent debts who have not received the full amount of their stimulus checks will receive a reduced recovery refund credit or nothing at all when they claim it on their 2020 tax return.
“This disparate result undermines public confidence in the fairness of the tax system,” Collins said. “Taxpayers in financial difficulty who were entitled to receive the full amount of the [stimulus check] last year, but was not actually injured once. It is unfair to hurt some of these taxpayers a second time by foreclosing some or all of their stimulus payments. “
In a March 15 blog post, Collins said the IRS would not reduce recovery refund credits to satisfy federal tax debts. It will help, but it will not stop the reductions in repayment to pay off other debts. In addition, there remains the question of what to do with people who filed their 2020 tax returns and whose refunds were reduced or withdrawn before the IRS implemented this new policy.
A better solution for taxpayers is for Congress to reverse the December change so that all garnishment protections allowed for dunning checks also apply to the recovery rebate credit. This adjustment was not included in President Biden’s $ 1.9 trillion US bailout, but it may be addressed in future legislation.