Much confusion over stimulus checks – and how to claim a tax credit for any outstanding amount – leads to problems, extra letters, and delays when people file their 2020 tax returns.
The Internal Revenue Service corrects many mistakes that are made after people insert the wrong number for the recovery refund credit on their federal tax returns.
“Anytime there is something new in the tax return, the error rate is usually high,” said Mark Luscombe, senior analyst at Wolters Kluwer Tax & Accounting. “The IRS may have a greater volume of erroneous tax returns than normal, and refunds are generally slowed down when the IRS detects such errors.”
Luscombe said the additional errors are likely creating processing issues.
Why am I getting a letter from the IRS?
The IRS has already started sending letters to some taxpayers who have claimed the 2020 recovery refund credit and may get a different amount than they expected.
“If a correction is needed, there may be a slight delay in processing the return and the IRS will send the taxpayer a letter or notice explaining any changes,” the IRS said.
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The agency will calculate the correct amount if errors relating to the first and second stimulus payments are found on line 30 of the 1040 or 1040-SR.
Once the correct amount is calculated, the IRS will make the correction and continue processing the return.
What kind of mistakes could I have made?
Some of the problems people encounter when claiming the payback refund credit have similar patterns. The IRS won’t reject your return, but if you’re aware of the potential mistakes, you can avoid some delays and disappointments.
Many times you will see a smaller tax refund than expected if you don’t understand how the recovery refund credit works.
Here is a list of what some people do wrong:
- You have been declared as a dependent on another person’s 2020 income tax return. If so, you are not eligible for the first or second stimulus payment.
- You did not provide a valid social security number for the job.
- You attempted to claim stimulus money – which you would not qualify for – for a child aged 17 or older on January 1, 2020.
- You forgot a mathematical error related to the calculation of adjusted gross income and economic impact payments already received.
Luscombe said some of these errors associated with the recovery refund credit are similar to those the IRS has had to deal with for years involving other tax breaks.
For example, he said, the IRS has long had to look for dependents on more than one tax return. And the IRS routinely rejects returns for invalid Social Security numbers and frequently corrects math errors.
How many stimuli did you receive?
The Salvage Discount Credit adds another layer of complexity.
The IRS will not calculate the recovery refund credit for people. You will need to find line 30 when you file an income tax return.
But the IRS says, “If you make a mistake on the amount on line 30, the IRS will calculate the correct recovery refund credit amount, make the correction to your tax return, and continue to process your return.”
A lot of people continue to wonder what to do if they didn’t get that second stimulus check earlier in the year. Many people do not remember the amount of money they received.
Some people think they haven’t received any stimulus money, and then they’re shocked when they look at their bank statements. Some saw that a direct deposit for the second economic impact payment had been placed in their account earlier this year.
The best place to start is to determine how much stimulus money you have already received for the first Economic Impact Payment, which started rolling out in April 2020, and the second Economic Impact Payment, which has been approved. last December but started rolling out in January. 2021.
Look for letters that the IRS has already sent you, such as IRS Notice 1444 for the first economic impact payment and IRS Notice 1444-B for the second PIE to document the amount of stimulus money that has been sent to you.
If you discarded these letters or did not receive them, some taxpayers may be able to trace funds received by direct deposit by examining their bank statements for Economic Impact Payments.
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Some people received an IRS Notice 1444-A last fall. This notice indicated that you may need to take action to receive money. It was mailed to people who are generally not required to file federal income tax returns, but who may be eligible for the first economic impact payment.
And later this year, the IRS will send out “Notice 1444-C, Your 2021 Economic Impact Payment.” The IRS will send letters to people who have received a third economic impact payment and you should keep this letter with your 2021 tax records.
In terms of economic impact payments, the money could have been sent by direct deposit, paper check through the mail, or prepaid Visa debit card issued by MetaBank and mailed. And yes, if it has been lost in some way or another, the IRS has a method of tracking the money.
The IRS also notes that taxpayers who haven’t registered or received a letter or notice from the IRS can search for their individual tax information through an online IRS account. See www.irs.gov and “View your account information”.
What is the recovery rebate credit?
The recovery rebate credit is not new money. It is also not to be used for the third stimulus payments, which started to be issued in March.
The IRS notes that the first and second economic impact payments were technically prepayments of the 2020 recovery rebate credit.
Why should we be surprised, however, that so many people are confused. Most people refer to the money as stimulus cash and not as an economic impact payment.
The exact place of a recovery reimbursement credit in the tax table remains puzzled.
If you received the full amount of your first and second economic impact payments, you should not report these amounts on your income tax return. You have nothing to do.
But someone who hasn’t received a first or second stimulus payment – and is eligible for a payment – should apply for the recovery refund credit on the 2020 tax return to get the stimulus money.
This is also true if you have received less than the total stimulus amount for which you are eligible for the 2020 credit.
Taxpayers will be required to file a federal income tax return for 2020 to claim the recovery refund credit if they have not received the money or if they have received less money than they are eligible to get, for example. example if a child’s stimulus was not included in the payment. This is true even if you usually don’t file a tax return.
The IRS will look at your 2020 income and your household situation to determine the amount of any credit you may be owed. Again, the credit would be reduced by any Economic Impact Payment amount that was previously issued to you.
When it comes to the recovery refund credit, the IRS does not cut you a stimulus check. Instead, if eligible, the IRS would assign this credit to any tax debt you owe in 2020 or your total income tax refund for 2020.
This shouldn’t be confused further, but this latest third round of stimulus payments isn’t covered in your 2020 tax returns.
But if you’ve already filed a 2020 return, the IRS might make adjustments to the third Economic Impact Payment that was issued to you in mid-March or later. And you might get some extra money.
The IRS issues what it calls “over-up” payments every week in the future, while the IRS continues to process tax returns.