Not a question: Those who are concerned about the Cares Act Stimulus Payment

[dthomas42]

IN

I have just received information that will help those parents/custodial and non-custodial regarding the $500 dependent credit in the stimulus package. All of the payments act as a credit for the 2020 tax year. For those who did not claim their child due to a pre-arrangement between yourself and the other parent, you may have the opportunity to claim the payment on your 2020 tax forms. It is a way that the government is attempting to be fair to both parents without having to do a deep dive and investigation (get the money to the people ASAP). Just an FYI.

 

[PayrollHRGuy]

I'm not doubting your information but it is generally helpful if you post a .gov type link for such information.

 

[Zigner]

IN

I have just received information that will help those parents/custodial and non-custodial regarding the $500 dependent credit in the stimulus package. All of the payments act as a credit for the 2020 tax year. For those who did not claim their child due to a pre-arrangement between yourself and the other parent, you may have the opportunity to claim the payment on your 2020 tax forms. It is a way that the government is attempting to be fair to both parents without having to do a deep dive and investigation (get the money to the people ASAP). Just an FYI.

Not if the other parent has already received it...

 

[Just Blue]

@Taxing Matters

 

[dthomas42]

I'm not doubting your information but it is generally helpful if you post a .gov type link for such information.

https://www.irs.gov/newsroom/why-the-economic-impact-payment-amount-could-be-different-than-anticipated

 

[PayrollHRGuy]

https://www.irs.gov/newsroom/why-the-economic-impact-payment-amount-could-be-different-than-anticipated

That doesn't say what you think it says.

 

[Taxing Matters]

That doesn't say what you think it says.

dthomas42 is correct. The CARES act provided for the stimulus payments to individuals by adding section 6428 to the Internal Revenue Code (IRC). That section provides a tax credit for the 2020 tax year. IRC § 6428(a) provides that the amount of the credit shall be:

(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.​

I call that credit the CARES credit. The reference to qualifying children in (a)(2) refers to children who are qualifying children for purposes of the child tax credit. Thus, if your kid would meet the requirements of being a qualified child for the child tax credit for the2020 tax return you may, if you meet the requirements as a qualifying individual, take that CARES credit. That CARES credit is then reduced by the amount of the advance stimulus payment (what the IRS called the Economic Impact Payment or EIP) the government sent to the taxpayer over the summer.

This means that noncustodial parents who get a Form 8332 from the custodial parent to claim the child as a dependent in 2020 and whose child would otherwise be a qualifying child for purposes of the child tax credit can claim that CARES credit on his/her return for 2020. Note that the child just has to meet the definition of qualifying child for the child tax credit; the taxpayer does not have to meet all the other requirements for the child tax credit.

This raises an interesting problem with parents who swap claiming the child as a dependent every other year. One of them may have gotten the stimulus payment over the summer based on their 2019 return but will end up ineligible for the CARES credit on their 2020 return. The other didn't get the stimulus payment over the summer but will be eligible for the CARES credit on the return. The one who got the stimulus payment but isn't eligible for the CARES credit lucks out in getting extra money he or she should not have gotten because the law does not allow the IRS to get that back. The IRS addresses that in the last question (Q70) of its EIP FAQ page:

Q70: What if a child's parents who are not married to each other both got the $500 for a child - will one of them have to pay it back? ​

​

A70. There is no provision in the law requiring repayment of a Payment. Instead, each parent should review Notice 1444, Your Economic Impact Payment, that the IRS will mail to their last known addresses within 15 days after the Payment is made. The parents should keep the notices for their 2020 tax records.​

​

And the parent who didn't get the stimulus payment but is eligible for the CARES credit on the 2020 return still gets that credit.

Not if the other parent has already received it...

Yes, even if the other parent already received the stimulus payment.

 

[Zigner]

Yes, even if the other parent already received the stimulus payment.

Are you saying that $500 can be issued TWICE for the same child without repercussions? If yes, that's an incredibly stupid oversight by the legislators.

 

[PayrollHRGuy]

So you are saying that both parents in this situation get the $500 one way or another and basically the taxpayers pay $500 more for some of the kids of divorce?

 

[Taxing Matters]

Are you saying that $500 can be issued TWICE for the same child without repercussions? If yes, that's an incredibly stupid oversight by the legislators.

So you are saying that both parents in this situation get the $500 one way or another and basically the taxpayers pay $500 more for some of the kids of divorce?

Yes to both of you. That's basically what the IRS is saying. And I think the Congress understood the problem but didn't want to recover incorrect payments given out during a pandemic. That would not be a popular move and besides the whole idea was to give out money to help stimulate the economy. This was not an exercise of pursuing a particular tax policy. The tax code and the IRS were simply the easiest vehicle to get those payments into the hands of the public as fast as possible.

 

[LdiJ]

Not if the other parent has already received it...

There is an issue that has not been fully addressed, but is a concern. Because it is an advance tax credit for 2020 but the stimulus was based on the 2019 return, not only may the parent who did not receive the stimulus payment, get to receive it on their 2020 return, the parent who got the stimulus, because they will not be claiming the child on their 2020 return, may have to pay the stimulus back.

People who received stimulus payments for deceased persons are being told by the IRS that they will have to pay the stimulus back. So even though it hasn't been addressed, the same theory could apply to the stimulus for dependents.

 

[Zigner]

There is an issue that has not been fully addressed, but is a concern. Because it is an advance tax credit for 2020 but the stimulus was based on the 2019 return, not only may the parent who did not receive the stimulus payment, get to receive it on their 2020 return, the parent who got the stimulus, because they will not be claiming the child on their 2020 return, may have to pay the stimulus back.

People who received stimulus payments for deceased persons are being told by the IRS that they will have to pay the stimulus back. So even though it hasn't been addressed, the same theory could apply to the stimulus for dependents.

That would make more sense. It doesn't seem right that two payments are issued for the same child without any expectation that the amount be recovered from the parent who shouldn't have gotten it.

 

[LdiJ]

That would make more sense. It doesn't seem right that two payments are issued for the same child without any expectation that the amount be recovered from the parent who shouldn't have gotten it.

Its certainly logical but it may still cause some sticker shock for parents not anticipating that. I do wish that they would specifically address that issue so that everyone is forewarned. For some parents that could cause financial distress. Not only will they not be getting the child tax credit for their child that year, but maybe have to pay the stimulus back as well.

 

[Taxing Matters]

...the parent who got the stimulus, because they will not be claiming the child on their 2020 return, may have to pay the stimulus back.

One would think that would be the case. But the IRS FAQ I quoted from earlier says otherwise.

 

[LdiJ]

One would think that would be the case. But the IRS FAQ I quoted from earlier says otherwise.

You have found an IRS FAQ that specifically addresses that? That specifically says that both parents can have the stimulus? Or, simply no provision that specifically says one way or the other? What you quoted is not specific to that. There is no provision in the law that says that a stimulus payment for someone who was deceased at the time that the stimulus was issued has to pay it back either, but the IRS is issuing info saying that they do.