What you need to know about confusing IRS notices and stimulus money
Many taxpayers who claimed the recovery rebate credit when they filed their 2021 tax returns are discovering they might not qualify for extra cash after all.
And if they do qualify, they're going to need to deal with the IRS further to get any extra money.
The Internal Revenue Service is sending out notices to tax filers who made mistakes claiming that they were owed extra stimulus cash through the recovery rebate credit on their 2021 federal income tax returns.
The IRS is telling taxpayers not to file an amended return in these cases.
"We have had several clients come in with letters from the IRS stating that their refund was adjusted because they were ineligible for the rebate recovery credit," said Matt Hetherwick, director of individual tax programs for the nonprofit Accounting Aid Society in Detroit, which offers free tax preparation for families and individuals with incomes up to $58,000.
"This happens with IRS records that show that they had sent an economic impact payment to the individual," Hetherwick said.
Not surprisingly, tax filers are dealing with a lot of frustration, confusion and anxiety when they receive the letters and bad news, instead of the refund cash that they had expected.
"Often we hear our client say that the IRS is making a mistake."
More: New parents, college grads get extra refund cash when they claim recovery rebate credit
Stimulus mistakes tripped some
But is the IRS wrong? Or did you possibly overlook that you received stimulus money last year? Or miscalculate how much stimulus money you received sometime from March through December last year?
Did you mistakenly claim that you're owed more money that you're really qualified to get when you filled out Line 30 on your 1040 form?
The IRS warned earlier in the tax season that it was seeing mistakes in claiming the recovery rebate credit once again this year — and the child tax credit — and mistakes could trigger waiting several weeks to resolve some of these issues.
As of April 7, the IRS had issued 9.4 million math error notices — including 8.3 million that were related to the recovery rebate credit and the child tax credit, according to a blog by the National Taxpayer Advocate.
Many people find the notices "vague and confusing," according to the blog.
For example, taxpayers who receive a math error notice adjusting the recovery rebate credit claimed on their return may be given all of the following as possible reasons that the IRS made an adjustment to the credit:
Primary or secondary Social Security number is missing or invalid
Dependent exceeds the age limit
Adjusted Gross Income exceeds limit to claim the credit
The amount was incorrectly computed
"Taxpayers are left to review their returns in order to determine the exact reason" why the recovery rebate credit was adjusted, according to the National Taxpayer Advocate.
What recovery rebate is in question?
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 amounted to up to $1,400 for each eligible person or $2,800 for couples. An additional $1,400 was given for each qualifying dependent.
Not everyone was eligible for stimulus money. The third payment was quickly phased out based on income. The payment was phased out entirely for single people with an adjusted gross income above $80,000.
Married couples filing a joint tax return would not get any payments in the third stimulus if their adjusted gross income was more than $160,000.
Those claiming the head-of-household filing status would not get stimulus money for the third round if their AGI was above $120,000.
The third round of stimulus money initially was based on 2019 or 2020 tax return information. But you might not have received all of your money at once.
"Plus-up" payments were made last year to individuals whose advance payment was initially based on a 2019 return and who later filed their 2020 return that indicated that they qualified for more money.
The goal was to get people as much of the money that they were owed in advance. But you would not claim the credit if you already received all that you were due.
What steps can help fix things?
The IRS mailed out Notice 1444-C last year to show you how much was issued for the third stimulus payment.
On top of that, the IRS began issuing what it calls Letter 6475 late in January to help tax filers figure out how much they received for the third stimulus. Married couples filing a joint return received two letters.
Those who received their correct amount of stimulus money would not have claimed any money was due on Line 30.
If you claimed the recovery rebate credit on your tax return, the IRS said it will calculate the correct amount of the credit 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 change made.
If you agree with the changes the IRS made, no response or action is required.
If you disagree, the IRS suggests calling the toll-free number listed on the top right corner of your notice.
Pay attention to any deadlines listed on those IRS letters. "If taxpayers disagree with the notice," the National Taxpayer Advocate said, "they should contact the IRS by the date provided in the notice, which is at the top right-hand corner of the first page."
You have a 60-day window to dispute a math error.
If the IRS agrees to make a change to the amount of Recovery Rebate Credit you are owed and it results in a refund, you may check the status of your refund from your original return using "Where's My Refund?" at IRS.gov.
Many times, experts say, the IRS is correct in making the adjustments relating to the recovery rebate credit.
"My team indicated that in almost every instance there was a reason for the IRS to initially adjust the refund because their records indicated a payment was made," Hetherwick said.
But by tracing the payment, he said, the nonprofit's tax preparers have helped several taxpayers identify payments that they did not receive and they will receive the refund.
In addition, taxpayers who did receive the money in the first place, he said, end up feeling better when they know that the IRS correctly adjusted their refunds.
When taxpayers complain that they didn't receive their money, Hetherwick said research needs to be done to see if the credit is owed and, perhaps, the IRS made a mistake.
"We are able to request a transcript from the IRS, which will show us what they have on record," he said.
"An individual can do this on their own by signing into their IRS online account."
If the tax filer still maintains that they did not receive the money, he said, it's possible to initiate a way to trace the payment using IRS Form 3911.
If a check was lost and not cashed, the IRS can issue a replacement check once the initial original check is canceled.
The IRS notes that you can initiate a refund trace by calling the IRS refund hotline 800-829-1954 and either using the automated system or speaking with an agent.
If you filed a married filing jointly return, the IRS states that you can’t initiate a trace using the automated systems. You'd have to download and complete the Form 3911 or the IRS can send you a Form 3911 to get the replacement process started.
Hetherwick noted that if a check was sent and cashed, the Bureau of Fiscal Service will send a "claims package" to the individual to fill out, which will allow them to confirm if they need to reissue payment to the individual.
Hetherwick said this method also covers situations where direct deposits may have been sent to the wrong account or a closed bank account.
The hassle factor is high for individuals. But overall, the error rate for the IRS has been historically low when it comes to the recovery rebate credit.
Last year, the IRS correctly calculated the allowable recovery rebate credit for 26.1 million tax returns — or 99.3% of the returns claiming the credit, according to a report released in May by the Treasury Inspector General for Tax Administration.
The report noted that 26.3 million tax returns claimed recovery rebate credits for 2020 totaling $39.2 billion, as of May 27, 2021.
Taxpayers who normally don't make enough money to be required to file a tax return continue to be encouraged to file a 2021 return if they have not filed already and they didn't receive the entire amount of third-round of stimulus payments.
Other IRS notices in the mail
Mark Steber, chief tax officer at Jackson Hewitt Tax Service, said taxpayers also need to be on the lookout for possibly receiving a CP14 Notice, which is often sent out 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 payment. Double check that the amount the IRS says is due is correct before writing a check. Many taxpayers may want to consult their tax professional.
CP14 notices are required by law to be issued within 60 days after the IRS assesses the tax liability. Each CP14 notice outlines what is owed, how to pay and other basic information about the unpaid balance.
Steber says it's important that taxpayers not ignore any IRS notices.
"They will only get worse and never go away," he said.
Watch out for scams
The IRS warned in early June that identity thieves continue to try to use economic impact payments or stimulus payments as a way to trick consumers.
Look out for any text messages, random phone calls or emails or inquiries about stimulus payments or tax refunds.
Don't click on any links in an email or text. Don't agree to verify your bank account information.
The IRS isn't contacting people directly about their stimulus money via phone, email, text or social media.
Contact Susan Tompor via stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.
This article originally appeared on Detroit Free Press: IRS: Some taxpayers claimed recovery rebate credit — but don't qualify
