REASON EIP PAYMENTS ARE GETTING REDUCED

[Lee B]

Copied from the National Taxpayer Advocate's Blog:

 

"Many Taxpayers May Not Receive the Full Amount of Economic Impact Payments to Which They Are Entitled, but the IRS Has the Discretion to Correct the Resulting Injustice.

Since March 2020, we have watched as the IRS has worked tirelessly to issue approximately 160 million Economic Impact Payments (EIPs) in 2020 and approximately 147 million payments in January 2021 to eligible individuals, totaling over $413 billion in financial relief. However, millions of eligible individuals are still waiting to receive some or all of their EIPs and were told they would have to claim a Recovery Rebate Credit (RRC) on their 2020 individual income tax return during the upcoming filing season.

A recent Treasury fact sheet estimated that “[a]s many as 8 million households may be eligible for but have not yet received payments from the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed in March.” Many more households received a portion of the EIP but not the full amount to which they were entitled. The first round of advanced payments of the RRC (known as the EIP) was worth up to $1,200 per eligible adult and up to $500 for each qualifying child (so that a married couple with two children could receive $3,400). Add to this the second round of advanced payments paid to many, but not all, eligible individuals earlier this month, worth up to $600 per eligible adult and qualifying child.

Changing Treatment of Economic Impact Payments and Recovery Rebate Credits

Internal Revenue Code (IRC) Section 6402 generally authorizes the IRS to reduce a taxpayer’s refund through offset to repay outstanding federal tax liabilities and requires the IRS to make offsets to satisfy past-due child support, unpaid student loans, and certain other federal and state liabilities. The CARES Act provided that EIPs and the RRC could not be offset to satisfy outstanding debts, with the exception of past-due child support. Since the passage of the CARES Act, the IRS has continued to tell taxpayers that it could not correct or issue additional EIP payments due to lack of resources and that individuals who did not receive some or all of their EIPs would need to claim an RRC when they file their 2020 tax return.

The Consolidated Appropriations Act, 2021 (CCA) went a step further and protected the second round of payments from all offsets, including past-due child support. However, it limited that exception only to advance payments and retroactively revised CARES Act Section 2201(d), subjecting RRCs to regular offset rules for unpaid federal taxes and certain other debts. As a result, RRCs are treated differently from EIPs paid in advance.

What this means: If you are an eligible individual who has not yet received your full EIP and you have certain outstanding debts, some or all of your unpaid stimulus payment will be withheld to offset those debts.

This approach – forcing eligible individuals to forgo receiving an EIP that was exempt from offset if paid timely – is a problem the law and the IRS have created. With the change in the law made by the CCA, the rug is being pulled out from under eligible individuals with outstanding debts. Since the spring, the IRS reassured these taxpayers that if they claim the RRC when they file their 2020 returns, they will get the full amount of stimulus money they are eligible for and be made whole. Now that reassurance turns out to be inaccurate based upon the law change"

If you have read this carefully, the Consolidated Appropriations Act redefined round 2 of the EIP payments to now be

Recovery Rebate Credits, an advanced tax credit  thus subject to being offset by back taxes.  Isn't this a wonderful profession ?

 

[Lee B]

IRS FAQ regarding the 2nd Stimulus Payment dated January 19th:

"Receiving My Payment

Will my second Economic Impact Payment be offset if I owe a federal tax liability, have a payment agreement with the IRS, or owe other federal debts? (updated January 19, 2021)

 

No"

Apparently the right hand doesn't know what the left hand is doing?