Don't Mess With Taxes

And what you might be able to do about it. But not until next year.

The hubby and I recently got our COVID-19 economic impact payment, despite my grumblings last month about not being able to get into the Get My Payment online tracking tool.

We knew that due to some financial moves we've made in recent years in preparation for retirement, we wouldn't get the full possible payment.

In case it's slipped your mind, that's $1,200 per individual, twice that for married couples who file a joint return. If you have qualifying dependent children younger than age 17, you should get $500 for each of them.

The amount that showed up in our checking account was less than our potential $2,400 pandemic payment. We are not alone in getting less than the max. In our case, that's OK. While the hubby and I always will take unexpected cash, we aren't in dire need of the money as we continue with our self-imposed quarantine.

But many other folks are not as fortunate. They've been laid off or furloughed, have families to feed and utilities to keep on and they want — need — the COVID-19 economic relief payment, the full amount, as soon as possible. Like now.

The Internal Revenue Service apparently is aware of the concerns of folks who, like us, didn't get as much COVID-19 cash as was advertised. Everyone who got or will get a stimulus payment also should receive a letter from the IRS explaining the amount directly deposited in our bank accounts or delivered as a specially-annotated Treasury check.

But for folks still waiting for that communique or who still have some questions about their EIP amount, the IRS has issued a statement explaining why some of us didn't get as much as expected.

Earnings determine payments: First, though, let's make sure you know what you should or could have received as a COVID-19 economic impact payment (EIP). The available amounts are based on where your income falls within the coronavirus relief payment earning parameters.

The full $1,200 per person goes to eligible recipients who had in either 2018 or 2019 — the IRS used the filing data from one of those tax years to come up with the amount to issue this year — adjusted gross income up to:

• $75,000 for individuals with a filing status as single or married filing separately,
• $112,500 for head of household filers and
• $150,000 for married couples filing joint returns.

If, however, you made more that the amount for your filing status, your EIP amount is reduced. This applies when your AGI is between:

• $75,000 and $99,000 for single or married filing separately taxpayers,
• 112,500 and $136,500 for heads of households and
• $150,000 and $198,000 when a married couple filed jointly.

If you made more than those top income amounts for your status, you won't get any COVID-19 payment at all this year.

Now as to why many of us among the already-delivered 130 million COVID-19 payments got less than the max amount. Here, according to the IRS, are six situations why that might have happened.

1. Slow tax return processing: The IRS automatically sends payments to eligible individuals who filed a tax return for 2018 or 2019. The agency looked first at the most recent filings, those submitted this year for 2019 taxes. If that's not available, it then goes to the 2018 tax return information.

Even if you've filed your taxes this year, the IRS might not use that data. It takes time between receiving your 1040, even one that's e-filed, and processing it. So if the IRS has not finished processing your 2019 return, it will use your 2018 taxes to make your COVID-19 EIP calculation.

That's a bummer for some folks either way. One year could mean a bigger stimulus check, but the IRS ended up using your other eligible tax filing.

For example, you had a child that was reflected on your 2019 taxes, but the IRS used your 2018 return filed before your bundle of joy arrived. In this case, you didn't get the extra EIP $500 for your qualifying dependent. Or you made less money in 2019, but the IRS used your larger 2018 earnings and shorted you some of the immediate COVID-19 payment amount. Sorry.

2. Only younger dependents count: As the example above shows, a dependent child could get you added COVID-19 EIP money. The key word here is child. And even then, the youngster's age is important.

Not every dependent you can claim on your tax return is eligible for the additional $500 payment.

Under the Coronavirus Aid, Relief and Economic Security (CARES) Act that created the payments, only children eligible for the Child Tax Credit qualify for the added COVID-19 stimulus money. Those qualification rules are, generally, that the child must:

• be related* to the taxpayer,
  
  *In addition to a taxpayer's own youngsters, related children include adopted children and foster children, as well as a taxpayer's younger siblings, grandchildren, nieces and nephews as long as they can be claimed as dependents.
  
  
• live with the taxpayer for more than half the year,
• be a U.S. citizen, permanent resident or other qualifying resident alien,
• have a valid Social Security number or Adoption Taxpayer Identification Number (ATIN),
• receive at least half of their support from the taxpayer and
• be younger than age 17 at the end of the tax year for which they are claimed.

Where parents of qualifying COVID-19 EIP children are not married and don't file a joint return, only one is eligible to get the extra $500. The parent who claimed the child on his or her 2019 (or 2018 if used) return is the one who will get the added dependent stimulus amount.

3. College students are out of EIP luck: Parents are well aware that their older children who are off at college are still their dependents in almost every definitional aspect. The IRS acknowledges that from a tax standpoint in allowing for most college students to be claimed as dependents on their folks' tax returns.

But for COVID-19 EIP purposes, dependent college students do not qualify for the $500 economic impact payment. Neither in most cases does the young adult qualify for the full $1,200 on his or her own.

Under the CARES Act, for example, a 20-year-old full-time college student claimed as a dependent on his or her mother's federal income tax return is not eligible for a $1,200 COVID-19 payment. Injury to insult, that student's mother will not receive an additional $500 even though she is supporting the college kid.

Older family members and college students might be tax dependents, but that status also prevents them from getting advance COVID-19 relief payments this year. (Photo by Nick Kenrick via FlickrCC)

4. Older dependents also face EIP elimination: The no-EIP situation is the same for other dependents who are 17 or older. While these individuals may qualify for the additional dependent tax credit created under the Tax Cuts and Jobs Act (TCJA), they are personas non grata under CARES Act stimulus rules.

These older dependents are not eligible for the $1,200 payment on their own. The taxpayers who claim them also will not receive the additional $500 payment due to the dependents' age.

5. Overdue child support reductions: While claiming a child could get you extra COVID-19 economic relief money, not keeping current with child support could reduce it.

Like tax refunds, an EIP can be offset by any past-due child support. The Bureau of the Fiscal Service will send the taxpayer a notice if this occurs.

For taxpayers who are married filing jointly and filed an injured spouse claim with their 2019 tax return (or 2018 tax return if they haven't filed the 2019 tax return), half of the total payment will be sent to each spouse. Only the payment of the spouse who owes past-due child support should be offset.

However, the IRS is aware that in some cases a portion of the payment sent to a spouse who filed an injured spouse claim also may have been offset by the injured spouse's past-due child support. The IRS is working with the Bureau of Fiscal Service and the U.S. Department of Health and Human Services, Office of Child Support Enforcement, to resolve this issue.

If you filed an injured spouse claim with your return and are facing a smaller EIP because of your ex's child support delinquency issues, the IRS says you don't have to take any action. As an injured spouse, you will receive their unpaid half of the total payment when the issue is resolved.

6. Debt collections could cut into EIPs: If you are facing collections actions for other unpaid amounts, your EIP could be affected. Economic impact payments, like federal tax refunds, are not protected from garnishment by creditors by federal law once the proceeds are deposited into a taxpayer's bank account.

Making up the missed amount: If you, like the hubby and I, got less that then full COVID-19 economic impact payment amount this year — and remember these payments will be going out through the rest of 2020 — all that relief might not be lost.

Recovery actions, however, won't be available for several more months. 

Tax situations and info entered on Form 1040 tend to change every year. And even though millions of these coronavirus payments are being distributed this year based on 2018 or 2019 tax data, the money is in reality an advance tax credit against your 2020 income.

Congress wrote the CARES Act that way so that the money could go out as quickly as possible this year when people are being hard hit by COVID-19 economic cutbacks.

You might qualify for an EIP amount, either the balance of the maximum amount if you got just a partial payment this year or all of it if you didn't qualify for any based on 2018 or 2019 filings, when you file your tax return next year.

If your 2020 income falls within the earning ranges, which could happen since 130 million (and counting) folks are out of a job right now, you can claim the COVID-19 payment on next year's Form 1040.

The good news also applies to college students and older dependents who were stiffed in this year's advance EIP tax credit payout system. A student, for example, who cannot be claimed as a dependent by a parent or anyone else in tax year 2020, may be eligible to claim a $1,200 credit on his or her 2020 tax return next year.

Similarly, an older parent (or other relative) who was claimed by his or her adult child as a tax dependent (and qualified the taxpayer for the additional dependent credit) didn't get the advance stimulus. But if in 2020 that situation changed and the parent (or other relative) is no longer claimed as a dependent, then that now independent individual might qualify for the $1,200 credit on their own 2020 tax return filed next year.

I know all these next year EIP permutations are of no help now. But it is at least a very little silver lining.

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