As millions of Americans begin receiving their promised Economic Impact Payments from the IRS, as authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), some may find that they did not get the amount they were expecting. While the amount that each eligible individual receives should reflect their situation for the 2020 tax year, the IRS is using their most recently filed 2018 or 2019 federal tax return to determine each payment. In many cases, this may lead to stimulus checks that are greater or less than eligible recipients should receive.
For individuals who believe they received less than they were entitled, they will be able to claim the additional amount on their 2020 tax return. This includes individuals who can now claim an extra qualifying child or those whose 2020 income is less than their income for the tax year used to calculate the original payment. Additionally, individuals who were claimed as dependents in 2019 but cannot be claimed as a dependent by anyone in 2020 may be eligible to claim their own $1,200 credit on their 2020 tax return.
In a situation where an eligible taxpayer received more than their 2020 situation would allow, there is currently nothing stated in the law that would require the taxpayer to repay additional amounts they received. This would be true in cases where a previously qualifying child turns 17 or the taxpayer’s income increases to a level that is above the threshold. However, payments do need to be returned if they were received by ineligible individuals. Ineligible individuals include those who passed away before their payment was received, nonresident aliens, incarcerated individuals and those who can be claimed as a dependent on someone else’s return (Click here for instructions on how to return an Economic Impact Payment).
Economic Impact Payments received by eligible individuals – whether received prior to their 2020 federal tax filings or claimed on their 2020 federal tax return – are not includible in federal gross income. They will not reduce a federal refund or increase federal tax due. The payment will also not affect income for purposes of determining eligibility for federal government assistance or benefit programs.
Taxpayers should keep the letter they receive from the IRS regarding their Economic Impact Payment with their tax records.