Many taxpayers who claimed the recovery rebate credit when they filed their 2021 tax returns find they might not be eligible for the extra money after all.
And if they qualify, they will still have to deal with the IRS to get the extra money.
The Internal Revenue Service is sending notices to filers who erroneously claimed they owed additional stimulus money through the Recovery Rebate Credit on their 2021 federal income tax returns.
The IRS tells taxpayers not to file an amended return in these cases.
“Several customers have come in with letters from the IRS stating that their refund had been adjusted because they were not eligible for the refund recovery credit,” said Matt Hetherwick, director of individual tax programs for the company at nonprofit Accounting Aid Society in Detroit, which offers free tax preparation for families and individuals whose income does not exceed $58,000.
“It happens with IRS records that show they sent an economic impact payment to the individual,” Hetherwick said.
It’s no surprise that filers face a lot of frustration, confusion and anxiety when they receive the letters and bad news, instead of the cash refund they expected.
“A lot of times we hear from our client that the IRS is making a mistake.”
Relaunch errors have caused some to stumble
But is the taxman wrong? Or have you perhaps forgotten that you received stimulus funds last year? Or did you miscalculate the amount of stimulus money you received from March to December last year?
Did you mistakenly claim that you were owed more money than you are truly qualified to get when you completed line 30 on your Form 1040?
The IRS warned earlier in tax season that it was seeing errors in claiming the recovery rebate credit once again this year – and the child tax credit – and errors could trigger a wait weeks to resolve some of these issues.
As of April 7, the IRS had issued 9.4 million notices of math errors, including 8.3 million related to the clawback rebate credit and child tax credit, according to a National Taxpayer Advocate blog post.
According to the blog, many people find the reviews “vague and confusing.”
For example, taxpayers who receive a notice of mathematical error adjustment to the recovery refund credit claimed on their return can be given as possible reasons why the IRS made a credit adjustment:
- The primary or secondary social security number is missing or invalid
- Dependent is over age
- Adjusted gross income exceeds the limit to claim the credit
- The amount was incorrectly calculated
“Taxpayers should review their returns to determine the exact reason” the recapture refund credit was adjusted, according to the National Taxpayer Advocate.
What recovery discount is this?
The third stimulus payment was part of the American Rescue Plan Act, signed by President Joe Biden on March 11, 2021.
The third economic impact payment was up to $1,400 for each eligible person or $2,800 for couples. An additional $1,400 was granted for each eligible dependant.
Not everyone was eligible for the stimulus money. The third payment was quickly removed based on income. Payment has been removed entirely for singles with adjusted gross income above $80,000.
Married couples filing joint taxes would not receive any payments under the third stimulus package if their adjusted gross income was over $160,000.
Those claiming head of household status would not receive third-round stimulus money if their AGI was over $120,000.
The third round of stimulus funds was initially based on information from 2019 or 2020 tax returns. But you may not have received all your money at once.
Plus-up payments were made last year to people whose prepayment was initially based on a 2019 return and who later filed their 2020 return showing they were entitled to more money.
The goal was to get people as much money as they were owed up front. But you wouldn’t claim the credit if you had already received everything you were owed.
What steps can help solve problems?
The IRS sent Notice 1444-C last year to show you how much was issued for the third stimulus payment.
In addition to that, the IRS began issuing what it calls the 6475 letter in late January to help filers determine how much they received for the third stimulus package. Married couples filing a joint return received two letters.
Those who received their correct amount of stimulus money would not have claimed money was owed on line 30.
If you claimed the recovery rebate credit on your tax return, the IRS said it would calculate the correct credit amount for 2021 if you made a mistake.
The process is as follows: The IRS will make a correction to your tax return and continue processing your return. But you may face delays. The IRS will send you a notice explaining any changes made.
If you agree with the changes made by the IRS, no response or action is required.
If you disagree, the IRS suggests calling the toll-free number listed in the upper right corner of your notice.
Pay attention to the deadlines listed on these letters from the IRS. “If taxpayers do not agree with the notice,” the National Taxpayer Advocate said, “they should contact the IRS by the date shown in the notice, which is in the upper right corner of the first page.”
You have 60 days to contest a mathematical error.
If the IRS agrees to change the amount of recovery rebate credit owed to you and it results in a refund, you can check the status of your refund from your original return using “Where’s my refund?” on IRS.gov.
Many times, experts say, the IRS is right to make adjustments for recovery forgiveness credit.
“My team indicated that in almost every case there was a reason for the IRS to initially adjust the refund because their records indicated a payment had been made,” Hetherwick said.
But by tracing the payment, he said, the nonprofit’s tax preparers have helped several taxpayers identify payments they didn’t receive and they will receive the refund.
Plus, the taxpayers who got the money in the first place, he said, end up feeling better when they know the IRS has adjusted their refunds correctly.
When taxpayers complain that they haven’t received their money, Hetherwick said research should be done to see if the credit was due and, perhaps, the IRS had made a mistake.
“We are able to request a transcript from the IRS, which will show us what they recorded,” he said.
“An individual can do this on their own by logging into their IRS on line Account.”
If the filer still maintains they didn’t receive the money, he said, a way to trace the payment can be found using IRS Form 3911.
If a check was lost and not cashed, the IRS may issue a replacement check after the original check is voided.
The IRS notes that you can initiate a refund trail by calling the IRS refund hotline at 800-829-1954 and using the automated system or speaking with an agent.
If you filed a joint married filing return, the IRS states that you cannot initiate a trace using automated systems. You will need to download and complete Form 3911 or the IRS may send you a Form 3911 to initiate the replacement process.
Hetherwick noted that if a check has been sent and cashed, the Bureau of Fiscal Service will send a “claim package” to the individual to complete, which will allow them to confirm whether to reissue the payment to the individual.
Hetherwick said this method also covers situations where direct deposits may have been sent to the wrong account or to a closed bank account.
The hassle factor is high for individuals. But overall, the IRS error rate has been historically low when it comes to recovery forgiveness credit.
Last year, the IRS correctly calculated the recapture refund credit allowed for 26.1 million tax returns — or 99.3% of returns claiming the credit, according to a May report by the Inspector General of the Treasury for tax administration.
The report noted that 26.3 million tax returns claimed recapture rebate credits for 2020 totaling $39.2 billion, as of May 27, 2021.
Taxpayers who do not normally earn enough money to be required to file a tax return continue to be encouraged to file a 2021 return if they have not already done so and have not received the total amount of the third round of stimulus payments.
Other IRS notices by mail
Mark Steber, tax director at Jackson Hewitt Tax Service, said taxpayers should also be on the lookout for a possible CP14 notice, which is often sent in June to taxpayers who still owe the IRS money. for unpaid taxes.
Steber said taxpayers want to make sure they understand the notice before making any payments. Verify that the amount the IRS says is owed is correct before writing a check. Many taxpayers may want to consult their tax advisor.
CP14 notices are required by law to be issued within 60 days of the IRS assessment of tax liability. Each CP14 notice describes what is due, how to pay, and other basic information about the outstanding balance.
Steber says it’s important that taxpayers don’t ignore any advice from the IRS.
“They will only get worse and never go away,” he said.
Beware of scams
The IRS warned in early June that identity thieves continued to try to use economic impact payments or stimulus payments to trick consumers.
Watch out for random text messages, phone calls or emails or inquiries about stimulus payments or tax refunds.
Do not click on any links in an email or text message. Do not agree to verify your bank account information.
The IRS does not contact people directly about their stimulus money by phone, email, text or social media.