IRS Cancels Stimulus Checks Issued to Decedents

Article Highlights:

  • Stimulus Payments to Deceased Individuals
  • Stop Payments Being Made on Checks Already Issued
  • IRS Authority to Deny Stimulus Payments to Deceased Individuals
  • History of Stimulus Payments
  • IRS Q&A Dealing with Deceased Individuals and the Return of the Payments

According to the recently updated IRS FAQ page, the Treasury Dept. has canceled outstanding Economic Impact Payment checks issued to recipients who may not be eligible, including those who may be deceased. Some sources indicate the Bureau of Fiscal Services, the agency issuing the stimulus checks, has stopped payment on uncashed checks and is even having those that have already been deposited into existing bank accounts reversed.

Is this an overreach by the Treasury Department?

The CARES Act, passed by Congress in March and the legislation that authorized the stimulus payments, says anyone alive in 2019 is entitled to compensation. Here is a little background on this issue.

In late April, in an interview with the Wall Street Journal, Treasury Secretary Mnuchin was quoted as saying that stimulus payments to deceased individuals should be returned. However, he provided no statutory authority requiring such payments to be returned.

Nina Olson, the former longtime IRS Taxpayer Advocate and founder of the Center for Taxpayer Rights, has asked, “what is the legal reasoning for this?” In various publications, she noted, as mentioned earlier, that the CARES Act doesn’t say deceased people can’t receive stimulus checks and added that the hard stance might have come from the White House.

There was a similar situation in 2008 during the worldwide Great Recession when real estate values tanked. At that time, Congress also authorized stimulus payments, and payments were also issued to deceased individuals. Back then, there was no requirement for those payments to be repaid.

Some of the later checks sent out this year were in an IRS envelope that stated that forgery of endorsements is a federal crime, etc., and had a checkbox “If the recipient is deceased, check here and drop in the mailbox.”

According to the Treasury Inspector General for Tax Administration, as of May 21, 2020, IRS had issued more than 157 million Economic Impact Payments totaling more than $264 billion. Of those, less than 1.2 million payments (less than 1 percent) were issued to deceased individuals.

As time has passed, the IRS has gotten more aggressive with their position that payments to deceased individuals be returned, even though they have not quoted any statutory authority. The IRS Q&A has been updated to include the following:

Q2. Who is not eligible for an Economic Impact Payment?

A2. Taxpayers likely won’t qualify for an Economic Impact Payment if any of the following apply:

  • You do not have any qualifying children, and your adjusted gross income is greater than
    • $198,000 if your filing status was married filing jointly
    • $136,500 for head of household
    • $99,000 for all other eligible individuals
  • You can be claimed as a dependent on someone else’s return. For example, this would include a child, student who can be claimed on a parent’s return, or a dependent parent who is claimed on their child’s return.
  • You do not have a Social Security number that is valid for employment.
  • You are a nonresident alien.
  • You filed Form 1040-NR or Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for 2019.
  • An incarcerated individual.
  • A deceased individual.
  • An estate or trust.

Q65. What should I do to return an Economic Impact Payment that was received as a direct deposit or a paper check?

A65. You should return the payment as described below.

If the payment was a paper check:
Write “Void” in the endorsement section on the back of the check.

  1. Mail the voided Treasury check immediately to the appropriate IRS location listed below.
  2. Don’t staple, bend, or paper clip the check.
  3. Include a brief explanation stating the reason for returning the check. 

If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:

  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
  2. 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.
  3. Include a brief explanation of the reason for returning the EIP.

Q66. How do I return an Economic Impact Payment that was received as an EIP Card (debit card) if I don’t want the payment re-issued?

A66. 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 amount re-issued:

Money Network Cardholder Services
5565 Glenridge Connector NE
Mail Stop GH-52
Atlanta, GA 30342

 

If you have questions related to stimulus payments to deceased individuals or others, please contact us.

How States are Reshaping Nexus Laws for Remote Employees Due to COVID-19

Ever since the coronavirus pandemic began impacting the United States, businesses around the country have responded by instituting work-from-home policies. While it is unclear how much longer the nation will be in the grips of the crisis, social distancing is likely to remain in place for many organizations. Some of the country’s most recognizable brands, including Facebook and Google, have already announced a work-from-home option that will extend through July 2021 for all of their employees, while others have made the ability to work remotely permanent.

As more organizations implement permanent or long-term work from home policies, they may need to review how nexus will be addressed. Especially now that several state governments are beginning to address work-from-home employees in terms of nexus and on tax revenue.

Traditionally, a state tax obligation is established when a business has a physical presence within its borders. That is what creates nexus. If a Floridian goes to New York for a temporary job placement, they have an income tax obligation in New York for the money that they earn there. If a California company places employees in Texas, then the company would have a responsibility to follow Texas laws and pay Texas sales tax. New York’s Governor Andrew Cuomo explicitly continued that practice when COVID-19 struck, making temporarily remote employees in New York liable for state income tax. However, several other states, including Massachusetts and Pennsylvania, made clear that the virus-related remote work would not trigger nexus obligations, at least until official work-from-home orders or states of emergency lasted. As mandates are being lifted while companies continue to allow or enforce work from home, those states are beginning to reconsider their position.

Below is our guidance regarding Congress’ stated position thus far regarding nexus, as well as the stance of other states. Please contact us if you have any questions.

Congress’s Position

While not every state has begun to address the tax ramifications of working-from-home due to COVID-19, Congress has started to address the issue. On July 27th, 2020, new legislation was introduced to limit the amount of state income tax that could be charged on income earned in the state to residents of another state. The proposal revises Section 403 of the American Workers, Families, and Employers Assistance Act (S. 4318), which says in part:

“No part of the wages or other remuneration earned by an employee who is a resident of a taxing jurisdiction and performs employment duties in more than one taxing jurisdiction shall be subject to income tax in any taxing jurisdiction other than: (A) The taxing jurisdiction of the employee’s residence (B) Any taxing jurisdiction within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned.”

The revision would extend the 30 days in part (B) to 90 days for the calendar year 2020 “in the case of any employee who performs employment duties in any taxing jurisdiction other than the taxing jurisdiction of the employee’s residence during such year as a result of the COVID-19 public health emergency.”

Indiana Addresses Nexus Rules Following COVID-19

The Indiana Department of Revenue recently posted information regarding the intersection of nexus and COVID-19 on its website. Their post indicated that they would “not use someone’s relocation, that is the direct result of temporary remote work requirements arising from and during the COVID-19 pandemic health crisis, as the basis for establishing Indiana nexus or for exceeding the protections provided by P.L. 86-272 for the employer of the temporary relocated employee.” Despite this assurance, the department went on to explain that nexus could be established for an out-of-state employer if their employee “remains in Indiana after the temporary remote work requirement has ended,” and that the employer could not “assert that solely having a temporarily relocated employee in Indiana [due to an official work-from-home order or a physician’s order related to a COVID-19 outbreak or diagnosis] creates nexus for the business or exceeds the protections of P.L. 86-272 for the employer.”

If your clients do business or have employees in Indiana and you need more information, visit the website of the Indiana Department of Revenue for more details.

Massachusetts Addresses Nexus Rules Following COVID-19

The Massachusetts Department of Revenue proactively announced new rules regarding nexus well before the full weight of the COVID-19 crisis was felt, and their anticipation of the changing landscape has led to them again issuing a statement to preempt any questions regarding taxation. The department issued rule TIR 20-05 with the intent of minimizing the impact of the COVID-19 state of emergency on employers and employees alike. It read in part:

“One or more employees working from home solely due to the COVID-19 pandemic will not subject a business to a sales and use tax collection obligation or to the corporate excise by reason of that fact” from March 10 until the conclusion of the state of emergency. That rule has now been revised with the intent of ensuring “that businesses have sufficient time to prepare for the cessation of these temporary rules.”

Revised Guidance on the Massachusetts Tax Implications of an Employee Working Remotely due to the COVID-19 Pandemic makes clear that TIR 20-05 will be in effect “until the earlier of December 31, 2020, or 90 days after the state of emergency in Massachusetts is lifted. As of that date, the rules outlined in this TIR will cease to be in effect, and the presence of an employee in Massachusetts, even if due solely to a Pandemic-Related Circumstance… will trigger the same tax consequences as under Massachusetts law more generally.”

The new guidelines go on to define a pandemic-related circumstance as including:

  • A COVID-19-related government order
  • A COVID-19-related remote work policy adopted by an employer in good faith compliance with federal or state government guidance or public health recommendations
  • A worker’s COVID-19-related compliance with quarantine, isolation directions relating to a COVID-19 diagnosis or suspected diagnosis, or a physician’s advice.

The new guidance indicates that any business asserting that it qualifies for an exemption based on these definitions will be responsible for substantiating and documenting any evidence supporting their claim and that without that verification, the nexus exemption may be denied. If your clients do business or have employees in Massachusetts and you need more information, visit the website of the Massachusetts Department of Revenue for more details.

Oregon Addresses Nexus Rules Following COVID-19

While the state of Oregon’s Department of Revenue has provided an exemption of corporate excise/income tax for COVID-19-related teleworking employees between March 8, 2020, and November 1, 2020, the explicit indication of the exemption ending on November 1st makes plain that traditional imposition of nexus will resume on November 2, 2020.

The Oregon Department of Revenue has also clarified how employees temporarily based in the state because of COVID-19 may affect nexus. The department explains:

“For Oregon corporate excise/income tax, the presence of teleworking employees … in Oregon between March 8, 2020, and November 1, 2020, won’t be treated by the department as a relevant factor when making a nexus determination if the employee(s) in question are regularly based outside Oregon.”

If your clients do business or have employees in Oregon and you need more information, visit the website of the Oregon Department of Revenue for more details.

South Carolina Addresses Nexus Rules Following COVID-19

Much like the finite time that the Oregon Department of Revenue has provided for the suspension of standard nexus rules, the South Carolina Department of Revenue issued its Letter #20-11, which outlines its suspension of establishing nexus, with the southern state’s expiration falling on September 30th, 2020.

If your clients do business or have employees in Indiana and you need more information, visit the website of the South Carolina Department of Revenue for more details.

If you need assistance or would like to schedule a consultation with your Tarlow advisor, please contact us.

Individuals Have a New Opportunity to Receive $500 Economic Impact Payments for Their Children

Article Highlights:

  • $500 Per Child Stimulus Payment
  • Non-Filer Tool
  • Those Who Have Already Used the Non-Filer Tool
  • Those Who Haven’t Used Non-Filer Tool
  • How Payment Will be Made
  • Get My Payment Tool
  • Non-Filers

The Internal Revenue Service has announced it will reopen the registration period for federal beneficiaries with children who didn’t receive a $500 per child Economic Impact (stimulus) Payment earlier this year.

When to Apply – The IRS urges specific federal benefit recipients to use the IRS.gov Non-Filers tool between August 15 and September 30 to enter information on their qualifying children to receive the supplemental $500 payments.

Who Should Register – Those eligible to provide this information include:

  • People with qualifying children who receive Social Security retirement, survivor, or disability benefits;
  • Supplemental Security Income (SSI);
  • Railroad Retirement benefits; and,
  • Veterans Affairs Compensation and Pension (C&P) benefits and did not file a tax return for 2018 or 2019.

The IRS anticipates the catch-up payments, equal to $500 per eligible child, will be issued by mid-October.

Already Used the Non-Filer Tool? – For those Social Security, SSI, Department of Veterans Affairs, and Railroad Retirement Board beneficiaries who have already used the Non-Filers tool to provide information on their children, and who haven’t yet received the $500-per-child payment, no further action is needed. The IRS will automatically make payment in October.

Haven’t Used the Non-Filer Tool? – For those who received Social Security, SSI, RRB or VA benefits and have not used the Non-Filers tool to provide information on their child or children, they should register online by Sept. 30 using the, “Non-Filers: Enter Payment Info Here” tool, available exclusively on IRS.gov. However, anyone who filed or plans to file either a 2018 or 2019 tax return should file the tax return and not use this tool.

Any beneficiary who misses the Sept. 30 deadline will need to wait until next year and claim the Economic Impact Payment as a credit on their 2020 federal income tax return.

How Will Payment be Received? – Those who received their original Economic Impact Payment by direct deposit will also have any supplemental payment direct deposited to the same account. Others will receive a check. The status of the payments can be checked by using the Get My Payment tool on IRS.gov. In addition, a notice verifying the $500-per-child supplemental payment will be sent to each recipient and should be retained with other tax records.

Non-Filers – Those who are not required to file a tax return are still eligible to receive an Economic Impact Payment by using the Non-Filers’ tool – but they need to act by October 15 to receive their payment this year. Otherwise, they will need to wait until next year and claim it as a credit on their 2020 federal income tax return.

The Non-Filers tool is designed for people with incomes typically below $24,400 for married couples, and $12,200 for singles. This includes couples and individuals who are experiencing homelessness. People can qualify, even if they don’t work or have no earned income. But low- and moderate-income workers and working families eligible to receive unique tax benefits, such as the Earned Income Tax Credit or Child Tax Credit, cannot use this tool. They will need to file a regular return.

If you have questions related to the child stimulus payment or stimulus payments in general, please contact us.