3rd Stimulus Check Overpayment....Input Needed

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OnTrack2020
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3rd Stimulus Check Overpayment....Input Needed

Post by OnTrack2020 »

Dear Bogleheads,

Am hoping to get some input.

In 2019, we filed MFJ and had four dependents--two of them were in college. We received the 1st and 2nd stimulus payment.

In early 2020, husband received a severance/buyout which, based on income, would have made us ineligible for 3rd stimulus payment. In May 2020, two of our children graduated college, are living on their own, and self-supporting. We are filing our taxes this week, as they just were finished up by CPA end of last week. Our income will, however, substantially decrease during 2021, and we should be eligible for the 3rd payment.

My concern is, I really, really thought that when our sons both filed their respective 2020 taxes earlier this month, that the IRS computers would have somehow matched SSNs and read that they were filing their own 2020 tax returns and not claimed by anyone else. They were both able to claim the 1st and 2nd stimulus payment on their 2020 returns. Maybe it's all in the timing too?

In the meantime, we have received $1,400 for 6 people. My husband say that the IRS did what was written into the law. How to deal with the extra $2,800 ($1,400 x 2 kids who are no longer our dependents) which really should have gone to our sons? They will both be able to claim the 3rd stimulus when they file their 2021 taxes in 2022. I imagine this is going to happen to many families whose kids graduated from college in 2020 and are no longer dependents.

Has there been any information put out about overpayments and what to do?
MontgomeryBurns
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MontgomeryBurns »

I am in a similar boat as you, OnTrack2020. I am single and earned ~$74k in 2019 and ~$150k in 2020. I received the first two stimulus payments based on my 2019 income, and had assumed I would not be getting the third since the IRS accepted my 2020 return on February 13. But I just received $1400 today!

Hoping to hear if anybody has any guidance here!
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gobel
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by gobel »

This is close, and the FAQ talks about returning payments for deceased people (Q A5). It doesn't actually cover the dependent to non-dependent case (and the resulting double-dip).

https://www.irs.gov/newsroom/economic-i ... ct-payment

Also, if you received payments for Stimulus 1 and 2 for kids that ended up getting the $1800 back themselves on their 2020 taxes, maybe those need to be returned too, but it is not that clear.

ps. for the 2nd poster, the law is clearer and states that advance payments will not need to be returned for the same individual if they eventually exceed the income limits.
MtnBiker
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MtnBiker »

OnTrack2020 wrote: Wed Mar 17, 2021 9:24 am
Has there been any information put out about overpayments and what to do?
According to https://www.kitces.com/blog/the-america ... d-to-know/:
NO CLAWBACK OF 2021 RECOVERY REBATE CREDIT PAID AT ANY ‘CHECKPOINT’
One critically important planning consideration is that the ‘Checkpoints’ described above represent a one-way opportunity to increase the amount of a taxpayer’s 2021 Recovery Rebate Credit.

Any amounts correctly paid based on the taxpayer’s income on file with the IRS at the time of payment can be kept by the taxpayer. There is no clawback on a taxpayer’s 2021 tax return of previously paid 2021 Recovery Rebate amounts, even if the taxpayer’s 2021 income is high enough to completely phase them out of receiving such credit. Which makes it especially important for those with income that was lower in 2020 to ensure they file in time to satisfy Checkpoint 2 (by the earlier of 90 days after their tax filing deadline, or September 1st, but not by just waiting until the latest possible due date for their extension!).
While the article referenced specifically addresses overpayments due to different incomes filed on different tax returns, I don't see why it would not also apply to overpayments made because of different dependent statuses on different tax returns. As an example, if an advance payment of the 3rd stimulus was made based on a 2019 tax return filing MFJ with 4 dependents, but you had only two dependents in 2020 or 2021, there should be no need to return the overpayment. Apparently the law was written specifically to forbid claw-backs of such overpayments. The two individuals who are no longer your dependents should also be able to claim their own stimulus payments. These should be paid automatically later this year after the deadline for submitting 2020 tax returns, or, if not, they can claim when they file their 2021 tax return in 2022.
Last edited by MtnBiker on Wed Mar 17, 2021 1:39 pm, edited 1 time in total.
Topic Author
OnTrack2020
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by OnTrack2020 »

gobel wrote: Wed Mar 17, 2021 12:22 pm This is close, and the FAQ talks about returning payments for deceased people (Q A5). It doesn't actually cover the dependent to non-dependent case (and the resulting double-dip).

https://www.irs.gov/newsroom/economic-i ... ct-payment

Also, if you received payments for Stimulus 1 and 2 for kids that ended up getting the $1800 back themselves on their 2020 taxes, maybe those need to be returned too, but it is not that clear.

ps. for the 2nd poster, the law is clearer and states that advance payments will not need to be returned for the same individual if they eventually exceed the income limits.
This wouldn't have been the case for EIP1 and EIP2, as the money given for dependent children was for under age 17.
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gobel
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by gobel »

Oh, in that case it might still work out ok? Ie you got the 6x1400 based on your 2019 income and there is no clawback, so on your 2021 taxes next year you just enter that number and get an additional $0.

Your two kids would also enter on their 2021 taxes next year that they got the $1400 and get an additional $0.

Ie. there's been no overpayment so far. However, if your two kids suddenly get additional $1400 checks each (after filing their 2020 tax this year), then you would have an overpayment. But that hasn't happened yet - ie. maybe the IRS *will* match their SSNs and realize they were already paid in the "family" check. You'll have to wait and see what happens I guess.
sofarsogood
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by sofarsogood »

similar situation here for our daughter. we got an extra $1400 (mfj) bec she was our dependent in 2019 and have not filed our 2020 return. then she filed her own tax return in 2020 (single efiled early feb) and got her own $1400 payment today + the first 2 stimulus payments through her 2020 refund.
MtnBiker
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MtnBiker »

gobel wrote: Wed Mar 17, 2021 1:51 pm Oh, in that case it might still work out ok? Ie you got the 6x1400 based on your 2019 income and there is no clawback, so on your 2021 taxes next year you just enter that number and get an additional $0.

Your two kids would also enter on their 2021 taxes next year that they got the $1400 and get an additional $0.

Ie. there's been no overpayment so far. However, if your two kids suddenly get additional $1400 checks each (after filing their 2020 tax this year), then you would have an overpayment. But that hasn't happened yet - ie. maybe the IRS *will* match their SSNs and realize they were already paid in the "family" check. You'll have to wait and see what happens I guess.
The law is what it is, so there is no waiting to see what happens. The IRS is obligated to issue the stimulus payments in accordance with the law. I am no expert in interpreting the law, but my guess is that stimulus payments issued to the parents (including amounts payable due to dependents) are considered the parent's funds. If the (former) dependents are due stimulus checks as individuals, then it seems the IRS should issue them their own checks according to the law as written. So, in my opinion, the correct statement would be:

Your two kids would also enter on their 2021 taxes next year that they got the $1400 zero and get an additional $0 $1400 each.
EverHopeful
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by EverHopeful »

We just received direct deposit of the 3rd Stimulus Check and it included $1400 for our non-dependent Adult Child. He was a dependent (college) in 2019, but not in 2020. We did not receive any previous stimulus payments for him, and we filed our 2020 taxes early March 2021 without dependents. I may try to call the IRS?

I'm sure we're not alone in this confusion.
EverHopeful
EverHopeful
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by EverHopeful »

EverHopeful wrote: Thu Mar 18, 2021 10:56 am We just received direct deposit of the 3rd Stimulus Check and it included $1400 for our non-dependent Adult Child. He was a dependent (college) in 2019, but not in 2020. We did not receive any previous stimulus payments for him, and we filed our 2020 taxes early March 2021 without dependents. I may try to call the IRS?

I'm sure we're not alone in this confusion.
EverHopeful
IRS is not accepting calls. I did find the following information from https://www.cnet.com/personal-finance/s ... y-and-how/

If you've already cashed or deposited the stimulus check, here's how you can return it
If you've already cashed or deposited your check, here's what to do.

1. Use a personal check or money order and make the check payable to the US Treasury. You'll also need to write "2020 EIP" and include the taxpayer identification number or Social Security number of the person whose name is on the check.

2. On a separate piece of paper, let the IRS know why you're sending the check back.

3. Mail the check to the appropriate IRS location -- that depends on which state you live in.


I would think I'd write 2021 EIP on the Memo. I may wait a week or so and see if the IRS is going to address this common problem as many college graduates in 2020 are no longer dependents.
docco
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by docco »

EverHopeful wrote: Thu Mar 18, 2021 11:08 am I may wait a week or so and see if the IRS is going to address this common problem as many college graduates in 2020 are no longer dependents.
I think you may be over-thinking this.

https://www.irs.gov/newsroom/economic-i ... tax-return

"For example, you received $500 for your child who, based on your 2018 or 2019 tax return, met the qualifying child requirements. That child turned 17 in 2020 and no longer meets the qualifying child requirements. You will not be required to pay back the $500."
EverHopeful
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by EverHopeful »

I think there are different issues, in our case we had a 21yo college dependent on our 2019 Tax Return, he became dependent with full time job after graduation in 2020 and we filed 2020 Tax Return with zero dependents. We correctly did NOT receive any EIP Stimulus payments for him in the first 2 rounds. This 3rd Stimulus included a dependent $1400 based on the 2019 tax return, but I believe this is a mistake as he is not a dependent in 2020 and will be filing his own non-dependent 2020 Tax Return.
docco
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by docco »

EverHopeful wrote: Thu Mar 18, 2021 11:22 am I think there are different issues, in our case we had a 21yo college dependent on our 2019 Tax Return, he became dependent with full time job after graduation in 2020 and we filed 2020 Tax Return with zero dependents. We correctly did NOT receive any EIP Stimulus payments for him in the first 2 rounds. This 3rd Stimulus included a dependent $1400 based on the 2019 tax return, but I believe this is a mistake as he is not a dependent in 2020 and will be filing his own non-dependent 2020 Tax Return.
That's because the first two rounds specifically left out dependents 17+ yrs old. This third round includes them.

The basic premise of J3, if you read the link I shared, is that even if your latest 2020 tax form makes you no longer eligible for some reason, they will not claw back stimulus that was already given to you.
Last edited by docco on Thu Mar 18, 2021 11:46 am, edited 1 time in total.
stats99
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by stats99 »

I believe this issue was well known, and many advisors and media outlets suggested holding off on filing 2020 taxes for some, ( thus using income and dependent status as of 2019) and quick filing of the 2020 taxes for others to optimize the payouts.
neilpilot
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by neilpilot »

docco wrote: Thu Mar 18, 2021 11:26 am
EverHopeful wrote: Thu Mar 18, 2021 11:22 am I think there are different issues, in our case we had a 21yo college dependent on our 2019 Tax Return, he became dependent with full time job after graduation in 2020 and we filed 2020 Tax Return with zero dependents. We correctly did NOT receive any EIP Stimulus payments for him in the first 2 rounds. This 3rd Stimulus included a dependent $1400 based on the 2019 tax return, but I believe this is a mistake as he is not a dependent in 2020 and will be filing his own non-dependent 2020 Tax Return.
That's because the first two rounds specifically left out dependents >16 yrs old. This third round includes them.

The basic premise of J3, if you read the link I shared, is that even if your latest 2020 tax form makes you no longer eligible for some reason, they will not claw back stimulus that was already given to you.
Isn't the above correction in red consistent with IRS guidelines?
docco
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by docco »

neilpilot wrote: Thu Mar 18, 2021 11:33 am
docco wrote: Thu Mar 18, 2021 11:26 am
That's because the first two rounds specifically left out dependents >16 yrs old. This third round includes them.

The basic premise of J3, if you read the link I shared, is that even if your latest 2020 tax form makes you no longer eligible for some reason, they will not claw back stimulus that was already given to you.
Isn't the above correction in red consistent with IRS guidelines?
You are right! I've edited my original comment to prevent further confusion.
agdg95
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by agdg95 »

We also had two adult student dependents in 2019 and 2020. Both have filed their taxes as they are no longer our dependents. My son who filed early February received his recovery rebate in his tax refund and his stimulus payment. My daughter will receive hers when she has her return deposited. She did not receive a stimulus payment yet. My husband and I are in the same boat - had a $5600 payment direct deposited Wednesday and are unsure when or if we will get a letter from the IRS for overpayment.
EverHopeful
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by EverHopeful »

PSA/FYI: The IRS updated their website on 3-26-2021 for returning an Overpayment of Third Economic Impact Payment (Third EIP), they have different addresses dependent upon your resident state:
https://www.irs.gov/newsroom/questions- ... ct-payment

General Questions regarding Third EIP have been updated 3-26-2021 here: https://www.irs.gov/newsroom/questions- ... ct-payment

Adult son has NOT received his Third EIP as part of his Tax Refund, but since he is not our dependent in 2020, we are not entitled to the $1400 they deposited so we'll be returning the $1400 this week.

Hope this helps, Happy Spring :happy

EverHopeful

Edited corrected link for Third EIP
MtnBiker
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MtnBiker »

EverHopeful wrote: Mon Apr 05, 2021 7:02 pm Adult son has NOT received his Third EIP as part of his Tax Refund, but since he is not our dependent in 2020, we are not entitled to the $1400 they deposited so we'll be returning the $1400 this week.

Hope this helps, Happy Spring :happy

EverHopeful
As "docco" explained above, you are clearly eligible for the $1400 based on your 2019 tax return. Even if you are no longer eligible for the $1400 based on your 2020 or 2021 tax returns, you are not required to return the money and the IRS cannot claw it back. Congress wrote the law with the intent of sending advance payments (based on sometimes incomplete 2019 information) in order to get the money into the hands of the consumer as quickly as possible.

I guess its your choice, but why would you return the $1400?
MtnBiker
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MtnBiker »

So far this thread has discussed situations in which stimulus payments have been affected by a change in a dependent's status as kids have left college and become independent. I have a different twist of this changing dependent thing.

We have a disabled adult son who receives Social Security disability payments based on my earnings record. In 2019 we were not eligible to claim him as our dependent because he paid more than one-half of his own support. In 2020 (and 2021) we paid more than one-half of his support and will claim him as a qualifying-relative dependent when we file our 2020 income tax return later this year.

Our son has received EIP1, EIP2, and EIP3. He qualified for the $1400 EIP3 based on his independent status in 2019. As far as the IRS is concerned, he is not our dependent because we have not yet filed our 2020 tax return.

We, as MFJ, have also received our EIP1, EIP2, and EIP3. After we file our 2020 tax return, I expect we should receive an additional $1400 plus-up EIP3 payment because of having a new dependent in 2020. I do not consider this to be an overpayment, but rather is money to which we are entitled based on timely filing of our 2020 taxes to optimize the payouts according to the law, as written.

When issuing the plus-up payment, the IRS will know that $1400 has already been paid to our son. So if my understanding of this process is wrong, they will simply not issue the plus-up payment. We shall see...
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OnTrack2020
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by OnTrack2020 »

OP here. I am assuming, and really not basing it on anything, that somehow these overpayments will need to be reconciled when filing 2021 taxes? I don't really have any idea, but decided just to hold the entire stimulus back in the event that is the case. Our sons ended up both receiving a stimulus check latter March. What a mess this tax year has been!
EverHopeful
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by EverHopeful »

MtnBiker wrote: Wed Apr 07, 2021 11:34 am
EverHopeful wrote: Mon Apr 05, 2021 7:02 pm Adult son has NOT received his Third EIP as part of his Tax Refund, but since he is not our dependent in 2020, we are not entitled to the $1400 they deposited so we'll be returning the $1400 this week.

Hope this helps, Happy Spring :happy

EverHopeful
As "docco" explained above, you are clearly eligible for the $1400 based on your 2019 tax return. Even if you are no longer eligible for the $1400 based on your 2020 or 2021 tax returns, you are not required to return the money and the IRS cannot claw it back. Congress wrote the law with the intent of sending advance payments (based on sometimes incomplete 2019 information) in order to get the money into the hands of the consumer as quickly as possible.

I guess its your choice, but why would you return the $1400?
MtnBiker,
We filed our 2020 Taxes on March 9 which disqualifies us keeping it and from my understanding reading the Eligibility here: https://www.irs.gov/newsroom/questions- ... rd-payment Son filed his taxes and received the 2020 Recovery Rebate of $1400 so if we kept it, in effect his SSN has received $2,800. Perhaps we're foolish, but I have a clear conscience.
MtnBiker
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MtnBiker »

EverHopeful wrote: Wed Apr 07, 2021 6:22 pm MtnBiker,
We filed our 2020 Taxes on March 9 which disqualifies us keeping it and from my understanding reading the Eligibility here: https://www.irs.gov/newsroom/questions- ... rd-payment Son filed his taxes and received the 2020 Recovery Rebate of $1400 so if we kept it, in effect his SSN has received $2,800. Perhaps we're foolish, but I have a clear conscience.
With all due respect, filing your 2020 taxes on March 9 does not disqualify you from receiving and keeping said payment. According to the law as written, the important date is the date on which the IRS processes your return, not the date on which you file the return. Quote from:https://www.congress.gov/bill/117th-con ... /1319/text
“(7) SPECIAL RULE RELATED TO TIME OF FILING RETURN.—Solely for purposes of this subsection, a return of tax shall not be treated as filed until such return has been processed by the Internal Revenue Service.
Since the IRS issued the payment to you on or about March 17, this is prima facie evidence that the IRS had not yet processed your 2020 return at the time the payment was issued. Otherwise such payment would not have been made. Thus the payment is valid based on your 2019 tax status in effect at that time. According to the authoritative Kitces blog article, there is no clawback of any payments which were valid at the time they were made. Quote from: https://www.kitces.com/blog/the-america ... d-to-know/
NO CLAWBACK OF 2021 RECOVERY REBATE CREDIT PAID AT ANY ‘CHECKPOINT’
One critically important planning consideration is that the ‘Checkpoints’ described above represent a one-way opportunity to increase the amount of a taxpayer’s 2021 Recovery Rebate Credit.

Any amounts correctly paid based on the taxpayer’s income on file with the IRS at the time of payment can be kept by the taxpayer. There is no clawback on a taxpayer’s 2021 tax return of previously paid 2021 Recovery Rebate amounts...
If our family should eventually in effect receive $2800 under our disabled adult son's SSN, we will keep the money with a clear conscience, since that is evidently the way Congress wrote the law.

A double payment under one SSN (one to the parents of the dependent child and one to the child while independent) is not an overpayment if such a double payment is authorized/mandated by Congress.
Flyin55
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by Flyin55 »

Thanks @MtnBiker . That was a helpful explanation.
MtnBiker
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Re: 3rd Stimulus Check Overpayment....Input Needed

Post by MtnBiker »

Flyin55 wrote: Fri Apr 09, 2021 4:30 pm Thanks @MtnBiker . That was a helpful explanation.
Thanks for the word of encouragement. I hope I am right, but I've been wrong before.

I just noticed that in the IRS FAQs there is one entry that seems to confirm my position on this issue. From: https://www.irs.gov/newsroom/questions- ... ax-return
[Q.] I received a Third Economic Impact Payment. Do I need to pay back all or some of the third payment if, based on the information reported on my 2021 tax return next year, I don't qualify for the amount that I already received? (added March 26, 2021)

[A.] No, there is no provision in the law that would require individuals who qualify for a Third Economic Impact Payment or an additional payment based on their 2020 or 2019 information, to pay back all or part of the payment if, based on the information reported on their 2021 tax returns, they would have qualified for a lesser amount.
This confirms the statement quoted above from the Kitces blog. So I think my position is correct, that is, only overpayments that were made incorrectly based on the 2019 or 2020 information on file with the IRS at the time of the payment would need to be paid back. Double payments made correctly based on changing 2019 and 2020 dependent status should not need to be paid back.

In the interest of full disclosure, the journalist on Marketwatch who calls himself the Moneyist says all double payments should be paid back. But he seems to state that as personal opinion rather than citing any provisions in the law to that effect. He is getting plenty of pushback in the reader comments section. https://www.marketwatch.com/story/i-rec ... inor_pos19
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