Many people are continuing to struggle to make ends meet due to the COVID-19 pandemic and related business shut-downs. On Sunday, December 27th, President Trump signed into law the Consolidated Appropriations Act (the “Act”), the fifth longest bill to be passed by Congress in the history of the country. Among many other things, the Act clarifies the tax treatment of PPP loans, provides for more so-called “stimulus checks”, extends unemployment benefits, and establishes a revamped Paycheck Protection Program. In this article we break down details about the Economic Impact Payments and how estates and trusts should handle them.
Who is Eligible?
The CARES Act says economic impact payments are payable to “eligible individuals.” An eligible individual is generally any U.S. citizen or U.S. resident alien. The payments are sent automatically to any eligible individual who filed a 2019 Federal income tax return. The IRS has provided other methods for eligible individuals who did not file 2019 tax returns to claim the payments.
What Amount Will be Provided?
The Act will provide direct payment to individuals and families, $600 per eligible individual, $1,200 for joint filers (down from $1,200/$2,400 under CARES Act) and $600 per qualifying child (up from $500 under CARES Act). Such payments phase out based upon an individual’s Annual Gross Income (AGI) based on 2019 returns.
The payment is reduced by 5% of the amount that the taxpayer’s AGI exceeds $75,000 (or $150,000). For example, a single taxpayer with no qualifying children and with an AGI of $87,000 is considered “fully phased out.” In contrast, a single taxpayer with 2 qualifying children is “fully phased out” at AGI of $111,000.
These payments are actually tax credits to be claimed on 2020 tax returns (which will be filed in 2021), with the payment pursuant to such credits being accelerated so that individuals can receive the funds now.
Payments Made to an Estate or Trust
You may have found yourself asking: What do we do if an economic impact payment check or direct deposit is received? There are numerous instances of checks being sent to deceased persons, with the recipients/holders of those checks being left with questions about what to do.
Note: Estates and trusts are ineligible for these stimulus payments.
The Act specifically excludes estates and trusts from the definition of “eligible individual” (as did the CARES Act). A trustee of a trust that receives an economic impact payment in his or her capacity as a trustee should return the money. The same is true for an administrator or executor of an estate and for a family member, friend, attorney, agent, etc. of a deceased individual who obtains possession of a payment sent for such deceased individual. Some envelopes containing paper checks now include a box on the outside of the envelope directing the person in possession to mark the box and place the envelope back in the mail if the payee is deceased.
But what about payments made to a deceased person that are directly deposited into a bank account? What about payments for qualifying children sent to a surviving spouse of deceased individual with whom such surviving spouse previously filed jointly? On May 6, 2020, the IRS provided instructions for those who need to return economic impact payment funds and later on January 6, 2021, provided instructions for those who received payment in the form of an EIP Card (debit card):
If the payment was a paper check that has not been cashed:
- Write “Void” in the endorsement section on the back of the check.
- Mail the voided check immediately to the appropriate IRS location.
- Do not staple, bend, or paper clip the check.
- Include a note stating the reason for returning the check.
If the payment was a paper check that has been cashed, or if the payment was a direct deposit:
- Submit a personal check, money order, etc., immediately to the appropriate IRS location.
- Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check.
- Include a brief explanation of the reason for returning the economic impact payment.
How do I return an payment that was received as an EIP Card (debit card) if I don’t want the payment re-issued?
If you received your EIP as a debit card and want to return the money to the IRS and NOT have the payment re-issued, send the card along with a brief explanation stating you don’t want the payment and do not want the payment re-issued to:
Money Network Cardholder Services
2900 Westside Parkway
Alpharetta, GA 30004
If a single check for $1,200 or more is made payable to either a surviving spouse or a deceased individual with a surviving spouse, in both cases in which the spouses filed jointly in 2019 and for which the surviving spouse is an eligible individual, the surviving spouse should first cash the check and then return $600 to the Treasury by following the second set of instructions above. If a direct deposit of $1,200 or more is made into an account held by or for a surviving spouse, the surviving spouse (or custodian of the account) should send $600 to the Treasury by following the second set of instructions above. All remaining funds for which the surviving spouse is eligible can be kept by the spouse.
While the IRS instructions do not explicitly allow holders of a paper check to cash the check knowing it contains, in part, an ineligible payment, it does not make practical sense for the holder to send the entire payment back to the Treasury and then request that a new payment be issued. As long as the proper amount is timely returned to the Treasury pursuant to the appropriate set of instructions above, there should be no issues with cashing a check knowing that a portion of the funds were sent incorrectly. Certainly, any individual not entitled to any economic impact payment funds who receives a payment should return all of the funds pursuant to the appropriate set of instructions above.
Any Ohio resident returning to the Treasury economic impact payment funds from an already-cashed check or a direct deposit should send the money to:
Kansas City Internal Revenue Service
333 W Pershing Rd.
Kansas City, MO 64108
For non-Ohio residents, the appropriate mailing address can be found here, under Question 41: https://www.irs.gov/coronavirus/economic-impact-payment-information-center#eligibility.
Please contact your Carlile Patchen & Murphy LLP attorney if you have any questions or need further guidance.