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6 Reasons IRS Economic Impact Payments May Be Less Than Expected

The IRS have explained 7 scenarios in which US taxpayers may not receive the amount that they expected

Published on May 12, 2020

As many US Taxpayers will hopefully now know, they are eligible to receive Economic Impact Payments issued by the US Government in response to the economic trauma caused by the Coronavirus pandemic and associated lockdown. (If you aren't aware, click here for more details).

However, the IRS has noted that there are certain circumstances where the amount you're expecting to receive may differ from the amount you actually do receive. Here are 6 scenarios outlined by the IRS which may have affected payment amounts:

1. You have not filed a 2019 tax return, or the IRS has not finished processing your 2019 return

If you have not yet filed a 2019 tax return, or your 2019 tax return has yet to be processed by the IRS, your 2018 tax return will be used as the basis of your payment. This may mean, for example, that life events reflected in your 2019 return - e.g. the birth of a child, a change in income status etc; may not be reflected in your payment. The IRS says that in many cases, those affected by this scenario "may be able to claim an additional amount on the 2020 tax return they file next year. This could include up to an additional $500 for each qualifying child not reflected in their Economic Impact Payment."

2. Claimed dependents are not eligible for an additional $500 payment

The IRS have outlined that in certain situations, a parent may not be eligible to receive the $500 additional payment per dependent. To qualify for the $500 payment:

a child must also qualify for Child Tax credit, meaning "the taxpayer generally must be related to the child, live with them more than half the year and provide at least half of their support";
The qualifying child must be "a US citizen, permanent resident or other qualifying resident alien"; The child must be "under the age of 17 at the end of the year for the tax return on which the IRS bases the payment determination"; the child "must have a valid Social Security number (SSN) or an Adoption Taxpayer Identification Number (ATIN). A child with an Individual Taxpayer Identification Number (ITIN) is not eligible for an additional payment.

The IRS also explain that parents who are unmarried, and do not file jointly, are not both entitled to the $500 additional payment. However: "The parent who claimed their child on their 2019 return may have received an additional Economic Impact Payment for their qualifying child. When the parent who did not receive an additional payment files their 2020 tax return next year, they may be able to claim up to an additional $500 per-child amount on that return if they qualify to claim the child as their qualifying child for 2020."

3. Dependents are college students

The CARES Act, which legislated the Economic Payment plan, states that dependent college students are not eligible for the $500 additional payment per dependent. The IRS do say that "However, if the student cannot be claimed as a dependent by their mother or anyone else for 2020, that student may be eligible to claim a $1,200 credit on their 2020 tax return next year."

4. Claimed dependents are parents or relatives, age 17 or older

Any dependents who are aged 17 or older are not eligible for the $500 additional payment per dependent, and the dependent will not receive the $1200 payment due to an eligible US Taxpayer. The IRS do say that "However, if the parent or other relative cannot be claimed as a dependent on the taxpayer's or anyone else's return for 2020, the parent or relative may be eligible to individually claim a $1,200 credit on their 2020 tax return filed next year."

5. Past-due child support was deducted from the payment

The IRS explain that "The Economic Impact Payment is offset only by past-due child support. The Bureau of the Fiscal Service will send the taxpayer a notice if an offset occurs.". Go to https://www.irs.gov/newsroom/why-the-economic-impact-payment-amount-could-be-different-than-anticipated for more details.

6. Garnishments by creditors reduced the payment amount

The IRS explain that "Federal tax refunds, including the Economic Impact Payment, are not protected from garnishment by creditors by federal law once the proceeds are deposited into a taxpayer's bank account."

What to do if your payment is less than expected

The IRS encourages all taxpayers to carefully study their eligibility, to understand what payment they will receive. If in doubt, do contact your tax expert, or feel free to contact one of the US tax firms listed in our A-List Directory.

The IRS recommend keeping a copy of the letter you will receive after your payment has been issued, and reassure taxpayers that "In many instances, eligible taxpayers who received a smaller-than-expected Economic Impact Payment (EIP) may qualify to receive an additional amount early next year when they file their 2020 federal income tax return. EIPs are technically an advance payment of a new temporary tax credit that eligible taxpayers can claim on their 2020 return. Everyone should keep for their records the letter they receive by mail within a few weeks after their payment is issued."

For more information, go to https://www.irs.gov/newsroom/why-the-economic-impact-payment-amount-could-be-different-than-anticipated

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