By Mary Michelle Gillum, attorney, Legal Aid Society
As taxpayers around the country finish filing their 2020 returns, many are finding themselves in a much different financial situation than last year at this time. Across Middle Tennessee, COVID has sent shockwaves through the economic lives of many residents, and our team of attorneys at Legal Aid Society’s Tennessee Taxpayer Project has been flooded with requests for help throughout the pandemic. Many of these requests center around the three stimulus payments that taxpayers have received since last spring. For a variety of reasons, a number of taxpayers either didn’t receive their checks or received less than they were entitled to. Here are a few of the most common issues we’ve been seeing, and what can be done to help — either by taxpayers themselves or with our assistance.
Missing or reduced stimulus payments Many taxpayers, especially those who recently changed addresses or bank accounts, didn’t receive either of the two Economic Impact Payments that went out in 2020. The government has made it possible for those individuals to claim their payments through a Recovery Rebate Credit when filing their 2020 tax returns. It’s important to note that even taxpayers who normally don’t file a tax return will have to do so to claim their missing payments. Taxpayers have up to three years from the tax return’s due date or until July 15, 2023, to file claims for the Recovery Rebate Credit. Others may have received a smaller amount than they expected. That’s probably because the payment was based on 2018 or 2019 federal tax returns, when taxpayers were in a different financial position. Another possible reason is that a portion has been garnished to cover delinquent debt, such as past-due child support, even when one person on a joint return did not owe the child support debt. Some payments have been taken by private collectors (the rules regarding garnishment have varied for the three stimulus checks issued so far). However, those who’ve belatedly received their checks in 2021 through the Recovery Rebate Credit have often had money taken out that those who got their checks on time did not — creating a perception of unfairness. Depending on the specific situation, there could be a way to recover that money. Since the Recovery Rebate Credit is based on a 2020 return, then those who did not qualify based on 2018 or 2019 returns could recoup their missing stimulus payments with the Recovery Rebate Credit. For taxpayers who filed jointly, but only one spouse owed child support, the non-debtor spouse could file for an Injured Spouse Claim to receive their part of the stimulus payment. For taxpayers filing 2020 returns in 2021, they might qualify for an Offset Bypass Refund with the IRS. Although it doesn’t protect all debts (unemployment overpayments, for example), it can protect money from IRS offsets. Filing a 2020 return can also help with rectifying any mistakes with the third stimulus payment that went out earlier this year. The IRS calculated the payments based on 2019 returns, so taxpayers who experienced a life change in 2020, like a new child, may not have received the proper amount. After your 2020 return is processed, if a previous payment was lower than it should be, the IRS should send a supplemental payment.
Identity theft and frozen payments Taxpayers should be on their guard against scammers who might be reaching out to them directly by phone or email. Remember that the IRS will never ask for personal information over the phone or email, so if anyone claiming to be from the IRS asks you for details like your Social Security number, don’t give it out. If you have been the victim of identity theft and your stimulus was mistakenly sent to a scammer, there is a mechanism for reporting the incident and issuing a refund to the correct person, although it can take up to nine months. We can assist with filing a form with the IRS to start this process. Some individuals who’ve recently experienced identity theft have had their stimulus payments temporarily frozen by the IRS as a protective measure. Although the money can be unfrozen by verifying one’s identity, this can be an unexpected burden for low-income individuals, some of whom don’t have traditional means of verification like bank accounts or credit cards. We can assist our clients with overcoming this obstacle and unfreezing their stimulus payments.
Unemployment taxation Normally, all unemployment compensation is taxable, but the American Rescue Plan of 2021, passed in March, excluded the first $10,200 of unemployment compensation from taxation for people with adjusted gross income under $150,000. However, people who filed their returns before this legislation was passed may have accidentally paid taxes on unemployment they received. The IRS is correcting many of the returns, so an amendment may not be necessary. However, if the taxpayer’s account is not corrected, they can file an amended return, and the IRS will send a refund to those who overpaid.
Where to get help If you’re a low-income individual dealing with these or other tax issues, Legal Aid Society’s Tennessee Taxpayer Project might be able to help you. To learn more or set up an appointment, call us at 866-481-3669.
Photo: Mary Michelle Gillum, attorney, Legal Aid Society