Impact payment received in error

[KarenMM]

I have a client who is obviously not eligible for the economic impact payment due to high income levels. She received an IRS check on January 6 and is asking what to do with it. My feeling is that she should just deposit it and deal with it on her tax return, rather than trying to send it back or leaving it uncashed. What are your thoughts?

[ATSMAN]

If she is not eligible I would not cash the check. Cashing the check has other legal implications!

[New York Enrolled Agent]

I have a client who is obviously not eligible for the economic impact payment due to high income levels. She received an IRS check on January 6 and is asking what to do with it. My feeling is that she should just deposit it and deal with it on her tax return, rather than trying to send it back or leaving it uncashed. What are your thoughts?

Are you saying her 2020 income level will result in an RRC of zero? The EIP is based on prior data. The RRC is based on 2020 data.

The law said everyone was eligible except:
(d) ELIGIBLEINDIVIDUAL.—For purposes of this section, the term ‘eligible individual’ means any individual other than—
(1) any nonresident alien individual,
(2) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, and
(3) an estate or trust.

Atsman - Being eligible is different than having a limitation.

[Lion]

Deposit the check if she's eligible -- see NYEA's post.

You will reconcile her EIP1 and EIP2 on her 2020 tax return, because they are advances on her 2020 Rebate Recovery Credit1 and RRC2. If she received too much, she does NOT have to pay it back. If she received too little or none, she'll have a net RRC as part of her 2020 refund.

By the way, try MFS for your MFJ clients if one of them has less than $75,000 for 2020. The larger RRC can make up for two sets of returns and the higher MFS tax rates. Run the numbers both ways. It can be huge if they have dependents! You'll be a hero to your clients who benefit.

[KarenMM]

Thanks all - MFJ clients are millionaires - so yes eligible but also limited down to zero - I have no idea how wife even got on IRS's list to receive a check - not husband, though, which is funny, since it's mostly her money, although they are both over the limits individually. What a mess!

[Rapid Robert]

Cashing the check has other legal implications!

Yet another intriguing claim out of the blue. Any sources for support?

If she received too much, she does NOT have to pay it back. .

In other words, no penalties and no collection action from IRS.

[Snaggletooth]

and deal with it on her tax return,

There won't be any dealing with it on the tax return. As I understand it, the tax return will be programmed to give a refund if eligible, but not collect if overpaid.

[ATSMAN]

Yet another intriguing claim out of the blue. Any sources for support?


In other words, no penalties and no collection action from IRS.

In general NOT cashing a check that does not belong to you is a safe bet. That is what an attorney told me!