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Stimulus check with a judgment

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Taxing Matters

Overtaxed Member
No. This is not a tax refund check. If it were a tax refund check, those who pay no taxes would not be receiving them.
I'm sorry, but you are wrong on both counts. You either didn't read the text (which is what I suspect) or didn't understand it if you did. The stimulus payment is provided for by adding a new section to the tax code, IRC Section 6428. Subsections (a) and (b) are what tell you this is a tax credit and thus a tax refund:

SEC. 6428. 2020 Recovery Rebates for individuals.
(a) In general.—In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2020 an amount equal to the sum of—
(1) $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus
(2) an amount equal to the product of $500 multiplied by the number of qualifying children (within the meaning of section 24(c)) of the taxpayer.
(b) Treatment of credit.—The credit allowed by subsection (a) shall be treated as allowed by subpart C of part IV of subchapter A of chapter 1.

Now, subsection (b) refers you to the subpart of the Code that deals with refundable tax credits. Refundable credits are credits that you get even if the tax owed is less than the credit. With a refundable credit, if you owe no tax, you get the full credit back in a refund unless the credit provision limits the amount in some way. This is not the only credit that is refundable. There are a number of them. So your assertion that people wouldn't get a refund of a credit if they owe no tax is wrong. With some credits, they do get a refund in that circumstance. The earned income credit (EIC), is one example. In short, this payment is treated as a refundable tax credit, and thus the payment is a tax refund check.

Please don't tell me I'm wrong when you haven't even read the provision we are discussing. It's frankly a little insulting, especially in an area you know I practice. If you can support your statement that I'm wrong with a citation that proves it, great, I'm happy to admit when I'm wrong. But you've not done that here.
 

quincy

Senior Member
Although I had to correct your misunderstanding of the original Senate Bill ;), I will cede to your self-proclaimed superior knowledge here.

My previous advice to Norm, however, stands.
 

Taxing Matters

Overtaxed Member
Although I had to correct your misunderstanding of the original Senate Bill ;), I will cede to your self-proclaimed superior knowledge here.
I'm not asking you to rely on my "self proclaimed superior knowledge." I'm simply asking that you have actually looked at the law in question before telling me I'm wrong, especially here where it's in an area I know and I already told you that I had read the actual text of the bill. Given that, I would have thought you'd think "gee, if he's read it and saying something different than I'm saying, maybe I ought to read it before jumping in and saying he's wrong." Or at least cite some other authoritative source for your position. Is that really too much to ask? It's frustrating to be told repeatedly in a thread that I'm wrong when I'm explaining things with actual citations and quotes from the bill and offered to provide more if needed. I then have to keep coming back to correct the wrong assertions. Members here have jumped on another member for posting wrong things about the law that they later have to correct because they get frustrated having to do that. So I hope you understand my frustration. It's not my intent to lord over you my expertise in this area, as you seem to imply. If it came across that way, that's not what I was going for. What I am going for is you giving me some benefit of the doubt when I've read the actual law and you have not yet done so. I realize from your statements that you were relying on some unidentified reports you've seen/heard/read about the bill, but not knowing what those are I cannot address them. I did say earlier that the general media gets this kind of stuff wrong a lot. They leave out important details or misunderstand what they've learned about the law from the experts they consult. So please bear that in mind when you rely on reports in newspapers, TV news accounts, etc. There is no substitute for reading the actual law involved. ;)

I'm not always right — and am happy to be corrected when I'm not. I'm not recalling the thread to which you refer where you corrected me, other than the one about the tax filing deadline, and that was only because I was waiting for the official announcement by the IRS in which it updated its guidance on it. That was a situation what was fast evolving and I'm glad that you were a little ahead of me on that and could get that info out to people. I acknowledged in that thread that indeed the delay applies to filing as well as payment, as you and others had indicated.

Bottom line, I'm just a little frustrated by being told I'm wrong without anything to back it up when I was trying hard to explain the law and how it will work, with appropriate citations and everything, and I offered to explain in more detail if that would help you. Then after I reached out to offer that explanation you come back and say I'm wrong and you don't even want to hear my explanation. Can't you see how that looks a bit like you are simply dismissing what I'm saying?

As for your advice to Norm concerning what to do if the account gets garnished, I see nothing wrong with it. But Norm needs to understand that the stimulus payment itself is not protected from attachment once it gets into his account, other than whatever protection state law may give to some amount of cash.
 

quincy

Senior Member
You made a few assumptions there, Taxing. ;)

If anyone wants to read the final text of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it is linked to in my previous post. You can see what it says about the relief checks on page 144 et seq, section 2201.2020 Recovery Rebates for Individuals.

There is a difference in the meanings of the words “rebate” and “refund” and “credit.”
 
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LdiJ

Senior Member
You made a few assumptions there, Taxing. ;)

If anyone wants to read the final text of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it is linked to in my previous post. You can see what it says about the relief checks on page 144 et seq, section 2201.2020 Recovery Rebates for Individuals.

There is a difference in the meanings of the words “rebate” and “refund” and “credit.”
Quincy, the tax code allows for a number of "refundable" tax credits. Refundable tax credits are defined as tax credits that someone receives even if they have no tax to credit them against.

Some of those credits are Earned Income Credit, the Additional Child Tax Credit, the refundable portion of the American Opportunity Education Credit, etc.

The money going to taxpayers is being treated as a refundable tax credit, which is why people who pay no taxes are still eligible for it. Your arguments against what Taxing Matters has posted are inaccurate and a tad offensive.
 

Taxing Matters

Overtaxed Member
You made a few assumptions there, Taxing. ;)
I read it as it appeared to me. While you know what you meant, what you wrote may not have come across as you intended. ;) But I do apologize for the tone in which I described my frustration. I clearly could have done better in explaining to you why the way your responses played out bothered me.

There is a difference in the meanings of the words “rebate” and “refund” and “credit.”
There is. And I described the stimulus payment correctly. The stimulus payment is defined in the Act as a refundable credit. See my post #17 which lays that out. And moreover, it is an advance credit that is being refunded now rather than waiting for you to file your return next year to claim it. This is clearly stated in IRC § 6428(f)(3)(A) (which is located on page 147 of the file you linked, starting at line 11, which states: "The Secretary shall, subject to the provisions of this title, refund or credit any overpayment attributable to this section as rapidly as possible. No refund or credit shall be made or allowed under this subsection after December 31, 2020."

While the title of the section granting the credit uses the term "rebate", that doesn't help in analyzing who this works because terms used in a title are not substantive; the courts look at the actual text of the tax law to determine how it works. So don't let the word "rebate" lead you astray; it has nothing to do with how this payment works.
 

quincy

Senior Member
Refunds, as Taxing called them, are neither rebates (used to stimulate the economy) nor credits (used to reduce taxes). Tax refunds are reimbursements of tax overpayments.

I certainly wasn’t the first to be rude or insulting.
 
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Taxing Matters

Overtaxed Member
Refunds, as Taxing called them, are neither rebates nor credits.
Ok, let's start with that. You are correct that refunds are distinct from credits, but they are related. And maybe that's where the problem here lies. As you noted, these stimulus amounts are tax credits. In the tax code there are two kinds of credits, refundable credits and nonrefundable credits. Nonrefundable credits only offset tax you owe. If the tax you owe is less than the credit, the excess credit is lost and doesn't do you any good unless there is a provision allowing you to carry it forward or carry it back to another tax year. Refundable credits, however, do result in a refund to the taxpayer when the credit exceeds the tax owed.

So the relationship here is that when a refundable credit exceeds the amount of tax owed it results in a refund of the excess.

The Act repeatedly tells you these are refundable credits throughout the text:

  • It states that these are credits that are to be "treated as allowed" under the subpart of the Code that deals with refundable credits, which includes credits like the EIC. Thus the credit you get here is going to work like those other refundable credits.
  • In providing for the immediate payment of this credit, Congress again says that the Secretary shall "refund or credit any overpayment" as soon as possible.
  • It specifically uses the phrase "advance refund amount" to describe what individuals are entitled to receive.
  • It provides that "any credit or refund" allowed under this provision is protected from most offsets to other liabilities that would ordinarily apply to a federal tax refund.
(All underlining added.)

The credits of which you speak (e.g., earned income tax credits) are treated like rebates.
Well, no. As it relates to income tax, the Code uses the word "rebate" the in the context of determining a deficiency in tax. The term "rebate" is specifically defined for that purpose and that definition would not fit what the Congress is doing with the stimulus payments. Moreover, the definition makes it clear that the term "rebate" is different from a credit. It is also different than what most people think of as a "rebate" (e.g. store rebate, etc). There is nothing in the Code that provides for a rebate payment. It provides for payments of refunds (see IRC $ 6402), which is why Congress repeatedly used the word refund in the text.

Does that help? I feel like I'm not doing a good job explaining this in plain English.


I certainly wasn’t the first to be rude or insulting.
You and I see this a bit differently but I don't see any purpose in hashing that out to determine (if we even could) what fault lies where. I apologized for my part in it. I was frustrated by your responses to me and have admitted I should have done a much better job in explaining the reason for that frustration. I did not mean to be rude or insulting to you. Nor do I think you intended to be rude or insulting to me. I was hopeful that, at the very least, you'd acknowledge and accept that apology. But your response above suggests to me you aren't willing to accept my olive branch. So what is it that you are looking for?
 

Taxing Matters

Overtaxed Member
Refunds, as Taxing called them, are neither rebates (used to stimulate the economy) nor credits (used to reduce taxes). Tax refunds are reimbursements of tax overpayments.
You edited your post while I was composing mine to read as above. I now see you have a concept for these terms that underlies your reasoning. You are correct that tax refunds are the results of overpayments. This Act provides each eligible individual with a credit of $1,200 ($2,400 for joint filers) toward their 2020 taxes. In the language of the Act: "In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2020...." IRC § 6428 (a)(1). And it goes on to provide that the credit is refundable. This makes it like the earned income credit (EIC) and also like tax payments made (withholding from wages, estimated tax payments, etc) in that if the total of all your refundable credits and tax payments exceeds your tax for the year, it results in an overpayment. Indeed, the Act specifically says "each individual who was an eligible individual for such individual’s first taxable year beginning in 2019 shall be treated as having made a payment against the tax imposed by chapter 1 for such taxable year in an amount equal to the advance refund amount for such taxable year." IRC 6428(f)(1)(underlining added). So you can see, it is treating this exactly like a payment made towards your 2020 tax liability. The bill then directs Treasury to "refund or credit any overpayment attributable to this section as rapidly as possible."

I totally agree that the purpose of the credit is to stimulate the economy, but the way that Congress chose to do that was to use the tax system, which already has mechanisms in place to handle this sort of thing, and to do that they had to use the existing Code framework for getting out payments — refunds of taxes. So they created a new credit which will result in the payments they want just by using existing rules in the Code. They didn't have to specify in this Act all the rules to make it work or create some new system to get this done.

In the end, if you prefer to think of them as rebates conceptually, I'm not going to argue that. But technically these are refunds. And regardless of whether they are called refunds or rebates, there isn't any federal law that would protect the money from a creditor once the individual receives the payment.
 
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quincy

Senior Member
Ok, I see. Interesting.
You obviously like to write about taxes. ;)

Although I wasn’t looking to read about them, I am sure Norm will be pleased that you took the time to educate him.

Norm should receive notice of a bank levy prior to the bank freezing any bank account so he can respond to the notice with his statement of exemptions then. If the only money he has in any bank account he holds is exempt (e.g., social security), he might prevent the levy entirely if he notifies his creditor of that fact.

The relief funds may (or may not) be deemed exempt from collection.
 

Taxing Matters

Overtaxed Member
Norm should receive notice of a bank levy prior to the bank freezing any bank account
The bank will freeze the account up to the amount on the levy/garnishment when the order is received and after that Norm would get notice of it. However, the bank won't remit the money to the creditor until the time provided in the statute to challenge the levy/garnishment is over. So the funds won't go anywhere — he won't be able to access them but they won't go to the creditor either — until any challenge is resolved. The exception is that if the bank can determine on its own that the account contains only Social Security or can determine what portion is Social Security it may not freeze those funds. It is for this reason that I suggest clients have their Social Security put into an account where only Social Security funds go. That makes it very easy for the bank to determine that the funds are exempt and the levy/garnishment wouldn't touch any of it. Have another account to put money coming from other places.
 

quincy

Senior Member
The bank will freeze the account up to the amount on the levy/garnishment when the order is received and after that Norm would get notice of it. However, the bank won't remit the money to the creditor until the time provided in the statute to challenge the levy/garnishment is over. So the funds won't go anywhere — he won't be able to access them but they won't go to the creditor either — until any challenge is resolved. The exception is that if the bank can determine on its own that the account contains only Social Security or can determine what portion is Social Security it may not freeze those funds. It is for this reason that I suggest clients have their Social Security put into an account where only Social Security funds go. That makes it very easy for the bank to determine that the funds are exempt and the levy/garnishment wouldn't touch any of it. Have another account to put money coming from other places.
Opening another account is a possibility to consider.

I read that, if a recipient receives social security benefits and has been having the checks directly deposited, the government will directly deposit the stimulus checks to that same account rather than using tax return information.

Of course, who can trust the media, huh? It’s all fake news and the reporters do not understand anything.
 
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