Can heirs keep a Coronavirus Recovery Rebate that the Internal Revenue Service sent to a dead person? If the decedent passed away this year, the answer is “yes.” If the tax filer died in 2018 or 2019, the answer is “maybe, maybe not.”
Last week, that question became more urgent as reports surfaced of payments showing up in the bank accounts (and presumably soon in the mailboxes) of the deceased.
Start with the relatively easy case: An unmarried person who died earlier in 2020 is owed a recovery rebate if his income was below the level where the payment ends ($99,000 for singles). If he had been married, his widow would receive his rebate as well as her own if their combined income was below $198,000. Generally, all tax credits are allowed on their final individual income tax return if decedents were eligible based on their circumstances at the time of their death.
But what if a person died last year and her family had not yet filed her final tax return?
Some tax experts claim they too have a legitimate claim to the rebate for their late family member.
Why? The Coronavirus Aid, Recovery, and Economic Security (CARES) Act says that the rebate is a credit against your 2020 individual income tax. But the advance rebate paid this year is based on the information in the last tax return filed—your 2019 return, or if that has not been filed yet, your 2018 return. You don’t have to repay the advance rebate if it is greater than the amount it would have been based on your 2020 circumstances.
I understand the implications of that provision when income increases in 2020 relative to 2019. That’s why the grad student with meager income in 2019 gets to keep her $1,200 advance rebate even if her income rises above $99,000 in 2020 after she leaves school.
Earlier this month, the IRS released guidance that says that parents can keep the $500 advance rebate for a dependent child who turns 17 in 2020—even though the age cut-off for that payment is 16.
Following the same logic, the survivors would be able to keep the advance rebate paid to the person who died in 2019 if the last return filed at the time the amount was determined was the 2018 tax return. An odd policy outcome? Maybe. But the situations seem parallel enough that the same rules should apply to a different change in circumstance: death.
Or maybe not. Estates and trusts are not eligible for the recovery rebates.
I don’t know. I am not a tax lawyer.
Maybe rebates are turning up in the accounts of dead people simply because of technical snafus—for example, the IRS might not have been able to access the most up-to-date death records collected by the Social Security Administration (SSA). That’s understandable given the pressure the IRS has been under to deliver payments swiftly. The Government Accountability Office has said that they are looking into the matter.
As my Urban Institute colleague, Jack Smalligan, says, “There are gaps in the process. It’s inevitable.”
Asked by a reporter about the payments to deceased people, President Trump responded “Everything we’re going to get back.” The IRS and Treasury have been more circumspect about what actions, if any, will be taken.
Let’s face it though: Going after money already paid to widows and orphans, who received the payments without taking any action on their part, is not a good image for the IRS.
And yet, why is it surprising that payments are being made to people who died in 2018 and 2019? At a Ways and Means hearing in 2008, Representative Lloyd Doggett (D-Texas) asked an IRS official why his late mother received a stimulus payment nine months after her passing. The response: “Sir, I don’t [know].” But the official offered to reread the guidance on the IRS website and provide an answer. And the “helpful” advice to survivors on the website: “Any issues involving a decedent’s filed return or related stimulus payment should be addressed by the legal representative of the decedent’s estate.”
The challenge in 2008—as it is now with the recovery rebate—is that the stimulus payments were based on information from tax returns filed in prior years. But waiting for more recent tax returns to be filed and processed is not an option when trying to get money out quickly during a sudden downturn in the economy.
Another challenge emerged in 2009, when SSA sent economic recovery payments to Social Security and Supplemental Security Income beneficiaries. Once again, payments were made to dead people: nearly 72,000 deceased people received the payments largely because SSA’s death records were not current.
In any future round of rebate payments, clearer statutory language is a must. So is issuance of useful guidance to taxpayers before any payments are made, so that everyone understands what to do if a rebate is sent to a deceased relative. But preventing administrative snafus, caused by process gaps, requires extensive investment in data and technology—the opposite of what has been happening to the IRS, which has been underfunded for years.
