On the morning of April 15, I saw that a $3,400 payment from the US Treasury had been direct deposited to my bank account. I knew it was the economic stimulus payment that had been authorized by Congress just a week or so before, but the amount I received was more than I was expecting. Hmm, I thought.
A week later, my 17-year old daughter received a check from the US Treasury for $1,200. The next day, my 14-year old son got his own check made out for the same amount. Oh boy, I thought.
There have been plenty of stories about the millions of people still waiting to receive their economic stimulus payment. Maybe you are one of them. Unfortunately, there doesn’t seem to be much to do in that case except wait.
Now, as more payments get made, we are hearing about the many people who weren’t entitled to receive a payment at all (for example, because they were dead.) Or who, like my family, received more than they were entitled to receive. What to do?
How Much Should the Payment Be?
The “Coronavirus Aid, Relief, and Economic Security Act” (“CARES Act” or “the Act”) authorizes a payment of $1,200 per taxpayer if the taxpayer has adjusted gross income (AGI) of less than $75,000 (or $112,500 if you file as head of household or $150,000 as a married couple filing jointly.) The amount of the payment phases out for individuals earning up to $99,000 (or $136,500 if you file as head of household or $198,000 for married filing jointly.) In addition, the CARES Act provides a $500 payment for dependents under the age of 17.
This means that a U.S. citizen taxpayer who files as single with no children and has AGI of less than $75,000 should receive $1,200. The same taxpayer who has AGI between $75,000 and $99,000 will receive somewhere between $1,200 and nothing. And a taxpayer with AGI of $99,001 and above will receive nothing.
A married couple earning $70,000, who files jointly, claiming two children ages 15 and 12, should receive $3,400. The sum of $1,200 for each parent and $500 for each child. That’s exactly what my family of four received – $3,400.
So What’s The Problem?
Here’s the problem. Under the Act, the stimulus payment is based on the taxpayer’s 2019 return. I had mailed my 2019 return to the IRS on March 23, 2020 (despite it being the 21st century for roughly the last 20 years, I continue to file my tax returns on paper, not using H&R Block, TurboTax or one of the other online services.) We were under the income threshold, but because my daughter was 17 on December 31, 2019 (not under the age of 17 as required by the Act to qualify for the $500 payment) I only expected to receive $2,900 ($1,200 for me + $1,200 for my wife + $500 for one child under age 17 = $2,900.)
But the Act also says that if the taxpayer hasn’t filed his or her 2019 return, the payment is based on the taxpayer’s 2018 return. My daughter was 16 when I filed a 2018 return. Clearly, when I received my $3,400 stimulus payment on April 15, the IRS had not yet received or processed my 2019 return mailed several weeks earlier. I got paid $3,400 based on my 2018 return.
That all seems well and good, at least I understand why I got what I got. But what happens when my 2019 return is processed and the IRS determines I should have only received $2,900? Maybe nothing will happen. Maybe the government will want the $500 back. I’ll just have to wait and see.
What to do with the $1,200 checks each of my teen children received is clear. They received the payments in error. Based on FAQs posted on www.irs.gov last week, the checks need to be returned. Q&A 41 describes the steps to take to return an erroneous stimulus payment.
The steps to return a paper check that has not been cashed are:
- Write “Void” in the endorsement section on the back of the check.
- Mail the voided Treasury check immediately to the appropriate IRS location based on where you live (list provided on the website.)
- Don’t staple, bend, or paper clip the check.
- Include a note stating the reason for returning the check.
Different steps apply for direct deposit and checks already cashed. While my kids were disappointed to learn they wouldn’t benefit from this windfall, it was a good lesson. Rather than immediately take advantage of the mistake by cashing the check and spending the money, we took a more cautious approach. Anticipating that the government would realize the mistake and want the money back, we wanted to have the money handy when it did. We are fortunate to have the financial flexibility to do this. Other families may find themselves in more dire financial circumstances and need to spend the money. But if they do, they may be hit with a surprise tax bill down the line. We just don’t know what the IRS is going to do. I’m pretty sure, under this administration, the IRS doesn’t know what it is going to do either.
Paul Carlino is a freelance writer who lives in San Miguel de Allende, Mexico. He formerly worked in Washington D.C. as an attorney for the Internal Revenue Service/Office of Chief Counsel.
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