In their attempt to get coronavirus stimulus checks out as quickly as possible, the IRS has sent some payments to individuals who are deceased, and others who are in jail or are non-citizens. Now, they’re asking for that money back. But how do you return a check?
On May 6, the IRS updated its FAQ page for stimulus checks. At the bottom, question 41 now asks, “What should I do to return an Economic Impact Payment? The rules are as follows:
If the payment was a paper check:
1. Write “Void” in the endorsement section on the back of the check.
2. Mail the voided Treasury check immediately to the appropriate IRS location listed below.
3. Don’t staple, bend, or paper clip the check.
4. Include a note 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.
In a nutshell, if you received a paper stimulus check, you should write VOID on it and send it back to the appropriate IRS location and include a note stating why it has been returned. If you received an ineligible payment through direct deposit, then you’re expected to pay the money back through personal check or money order made out to the US Treasury.
What Happens If You Don’t Return a Check?
At this point, it’s unclear what happens if a stimulus check is not returned.
Nina Olson, executive director of the Center for Taxpayer Rights, tells AARP, “What is the legal reasoning for this and why is this position different from the IRS’s position in 2008? The government is entitled to change its mind, but without explaining its rationale, this position appears arbitrary and capricious.”
The Tax Foundation’s Garrett Watson tells Money, “I suspect the IRS will encourage people to return payments given incorrectly, but it’s less likely the agency will pursue people legally or through the 2021 tax season. It’s important to note that the IRS FAQs are not considered legal documents or even formal guidance, so while they are helpful in establishing the agency’s position, we’d need more details before knowing whether they’d have a strong case to pursue individuals legally over the payments.”
Incarcerated Individuals Are Being Asked to Return Their Payments
When the IRS updated their FAQ page on Wednesday, they specified that incarcerated individuals should send their payments back.
In response to the question, “Does someone who is incarcerated qualify for the Payment?” the website now reads, “No. A Payment made to someone who is incarcerated should be returned to the IRS by following the instructions about repayments. A person is incarcerated if he or she is described in one or more of clauses (i) through (v) of Section 202(x)(1)(A) of the Social Security Act (42 U.S.C. § 402(x)(1)(A)(i) through (v)). For a Payment made with respect to a joint return where only one spouse is incarcerated, you only need to return the portion of the Payment made on account of the incarcerated spouse. This amount will be $1,200 unless adjusted gross income exceeded $150,000.”
They reference the Social Security Act to define an incarcerated person as someone in jail, prison, or a correctional facility; someone found guilty but insane or found not guilty by reason of insanity; someone found incompetent to stand trial; someone confined to an institution on a finding of being a sexual predator; someone fleeing to avoid prosecution or confinement after conviction; or someone on violation probation or parole.
Some people are confused about why those in prison need to pay the money back when they aren’t barred from receiving payments under the CARES Act guidelines.
Watson tells Money, “It’s not clear what the IRS’s reasoning is for asking for payments back from incarcerated individuals, as the CARES Act does not prohibit them from eligibility. Some have speculated it may have to do with incarcerated individuals being dependents (wards) of the state, but that is not contained in the IRS’s reasoning and isn’t true of other tax situations involving incarcerated people.”