My parents claimed me on their 2019 taxes and received my third stimulus check, but I don’t qualify based on my taxes. Will the IRS ask for it back?
Dear Quentin,
I’m confused. My parents claimed me on their 2019 taxes (which was fine and agreed upon). However, I got married and filed my own 2020 taxes. When the third stimulus checks were released, my parents had not filed their 2020 taxes yet, so they received stimulus money for me as their dependent (which they are more than willing to give me).
The problem is, based on my 2020 taxes, I’m not eligible for a third stimulus check because my husband’s and my income combined is over the limit. So the only reason I got the money was because the money was based off of my parents’ 2019 taxes.
Am I safe to spend the money? Or will the Internal Revenue Service want it back from me when the next tax season rolls around?
Confused
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Dear Confused,
Individuals making less than $75,000 a year in adjusted gross income would receive checks totaling that full amount. The payments decrease for individuals earning $75,000 and up — and they phase out completely for individuals making $80,000 or more and couples making $160,000 or more in adjusted gross income.
The $1,400 stimulus check is not a loan. This third stimulus check is an advanced tax credit on your 2021 taxes, and calculated based on your 2020 taxes. If you don’t qualify under your 2020 income-tax filing, then it’s likely that the IRS will adjust that in your parents’ next refund and/or ask for payment. You could wait to see what the IRS does, of course, but that leaves another question: Should your parents pay it back?
You never got any stimulus payment; thus, you do not have any repayment obligation, says Scott Haislet, CPA and attorney at law in Lafayette, Calif. “The parents’ 2020 return should reconcile the problem. If the parents report on parents’ 2020 return all payments received (including the payment for the child received inappropriately), the parents’ return will reflect a charge for the overpayment.”
“ ‘You never got any stimulus payment; thus, you do not have any repayment obligation.’ ”
“Probably wise to cash the check. If parents try to return the check, it will credit a nightmare of back-and-forth correspondence with IRS, the burden for which far outweighs any possible charges for underpayment on parents’ form 1040 for 2020,” he adds. “The 2020 return from the newly married child will not be affected.”
As an aside, “agreed-upon” is not the proper way to determine if and when somebody is claimed on another’s return as a dependent, Haislet adds. “The qualifying conditions for dependency, filing status, etc., are published in IRS 1040 instructions or Publication 17. They are dizzying to the average American, but they must be followed to get the right reporting outcome.”
“Parties may reach an agreement about being claimed, but government ignores such agreement,” he says. “Dependency credit, filing status (e.g., in some cases head of household), earned income credit, etc. is determined on the facts, not on agreement (the principal exception is divorced parents agreeing to assign a child to one or the other).”
For those who have received clearly erroneous payments, it does not seem right to keep them. But wait until the end of the 2021 tax year first. Yes, many people received checks that they put in the bank or put toward items that are not considered necessities. But they qualified for the economic impact payment. The IRS gives some guidelines here on how to return an erroneous refund.
If it feels like a tax hack, give it back.
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