CARES Act Recovery Rebate Payments: Do You Need to Pay Back the IRS?

In an effort to stimulate the economy during the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes a provision providing recovery rebates to individuals and families. However, in some cases, the IRS has incorrectly provided rebates to deceased persons—and these need to be paid back.

Below is an overview of the CARES Act recovery rebates, eligibility requirements, and what to do if you or a family member incorrectly receives a rebate.

Recovery Rebate Overview

For the 2020 tax year, eligible individuals will receive a tax credit, paid in advance, of up to $1,200—or $2,400 in the case of married filing joint taxpayers—plus $500 for each qualifying child. The credit is paid as an advance refund and is calculated based on adjusted gross income (AGI) of the taxpayer’s 2019 income tax return or, if not yet filed, the taxpayer’s 2018 income tax return.

To receive the full credit, taxpayers must have an AGI that doesn’t exceed:

  • $75,000 for single filers
  • $150,000 for married filing-joint filers
  • $112,500 for head-of-household filers

The credit is phased out by 5% for every dollar AGI exceeds these thresholds.

For taxpayers who didn’t file an income tax return for either 2018 or 2019, the US Department of the Treasury will look to amounts reported by Social Security on Forms SSA-1099 and RRB-1099. The refund will be paid directly via previously provided direct deposit information on the taxpayer’s income tax return, or, if direct deposit information wasn’t provided, a check will be mailed to the taxpayer. 

Definitions and Eligibility

The definition of a qualifying child for this purpose is the same as for the child tax credit: generally those 16 years and younger.

Eligible individuals don’t include:

  • Nonresident aliens
  • Individuals who can be claimed as a dependent by another taxpayer
  • Estates and trusts

Funds to Deceased Taxpayers

In addition to the ineligible individuals listed above, the IRS has recently clarified that deceased individuals who died before receipt of the payment are also ineligible. However, because payments are being sent to taxpayers based on information from prior tax filings, the government has been:

  • Sending checks to deceased taxpayers
  • Paying too much to surviving spouses or individuals with a deceased qualifying child

In these situations, the IRS has instructed that taxpayers should return ineligible payments to the government. If a paper check was received, it should be returned with Void written in the endorsement section on the back of the check. If a direct deposit was received, a personal check or money order should be made payable to US Treasury with 2020EIP and the recipient’s taxpayer identification number written on the memo line.

For more information or to determine the address to which a return check should be sent, please see Q&A 54 on the IRS website.

Examples

Single Taxpayer

Suppose your uncle passed away in 2018 with no surviving spouse and named you executor of his estate. As the executor, you filed his final income tax return for 2018, but, of course, there wouldn’t be any future income tax filings for your uncle.

Because the IRS is sending payments by referencing 2019 or 2018 income tax returns, if a 2019 return hasn’t been filed, your uncle may be sent a recovery rebate payment based on his final 2018 income tax return. In this situation, the entire rebate payment should be sent back to the IRS.

Married Taxpayer

Assume your parents were married and filed joint income tax returns until your father passed away in 2019. Their AGI for 2018 and 2019 was under $150,000. Your mother may still receive a recovery rebate payment of $2,400 based on your parents’ AGI and married filing joint status on their 2018 and 2019 income tax returns.

However, because your father passed away before receiving the rebate payment, your mother should return the portion attributable to your father—in this example, $1,200—to the IRS.

She’s still able to keep her $1,200 portion of the rebate payment.

Deaths in 2020

According to the IRS instructions, because an individual must be alive when the recovery rebate payment is received to be eligible, the timing of a death and when payment is received is important. 

If an individual passes away just one day before receiving the payment, it should be returned to the IRS.  In the case of a married couple, only the portion attributable to the deceased spouse should be returned to the IRS.  However, an individual who passes away just one day after receiving the payment wouldn’t need to return it.

We’re Here to Help

The CARES Act intends to put immediate cash into the hands of individuals and business owners. To learn how these provisions can help your personal needs, contact your Moss Adams professional.

Note on COVID-19

During this unparalleled time, we’re closely monitoring the COVID-19 situation as it evolves so we can provide up-to-date guidance and support to help you combat uncertainty. For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: