Unexpected Refund

[Patrick Michael]

Client received their expected refund in March.  Yesterday they received another $3,000 refund.  They called the IRS and actually got through and were told it was an adjustment for the Unemployment Insurance deduction.  I reviewed the return and the $10,200 was deducted from their UI income (only one spouse received UI) on line 8 of schedule 1.  There were no other credits that could have been affected. Even if the $10,200 was not excluded on the original return this does not make sense.  They would be in the 12% tax bracket with or without the exclusion.  So if the exclusion was not taken I would expect the refund to be $1,224 ($10,200 x 12%).

Any ideas on what I might be missing?  Anyone else experience this?

 

 

[Lynn EA USTCP in Louisiana]

Was the unemployment more than $10,200?  Are they in a community property state? 

[Patrick Michael]

No community property state (NY)  Yes, Unemployment was $29,000. 

[Max W]

Gosh, Oh golly, you mean the IRS made a mistake.  What is this world coming to?

The clients would be best advised to put the money in a separate bank account, because sometime within the next 3 years they may receive a letter from the IRS.

"Dear Taxpayer,

In August of2021 we sent you a  refund check for $3000.00.

We are sorry to inform you that the person who calculated your refund was suffering from apoxia due to prolonged mask wearing.

Said person made an error in determining your refund, which we have found in its totality to be unwarranted.

Please accept our sincere apologize for this, but we demand that the $3000.00. plus interest of $27.33 be returned to us within 15 days, or interest will continue to accrue.   Furthermore, failure to pay could subject you to collection action including levying your bank account and garnishing your wages.

Joe Potatohead, Supervisor of Dumbbells"

 

 

[Patti in Upstate NY]

I had this happen on Monday.  Client who had been contacting me about advanced CTC sent a text that he'd just received $3200 from IRS.   

Further proof it's getting closer and closer to it's time for me to retire is that I had no memory of anything that might have been pending and told him to log in to his IRS account to see if there was any correspondence explaining why he received the payment.

Then a lightbulb went on.   I had been holding his return waiting for final guidance on unemployment.  His wife collected, he did not.  Their AGI was $154K so they were above the income limit and then Cuomo said NYS would not waive so I released the return.  Within 2-3 days?  IRS said if total income reduced by unemployment was under $150K then waive the first $10,200.  It was too late.  It was already efiled.

My confusion resulted in my stupid decision to go in and change his return to reflect waiving $10,200 in order to have the appropriate numbers carry forward.  ON A RETURN THAT WAS ALREADY EFILED AND ACCEPTED!     Again - retirement is not only looking better.  It may be necessary.

I don't use ATX anymore but could you have been old and stupid like me and made a change after it was filed?  I'm guessing not given the tax bracket calc but throwing it out there.

 

 

[Patrick Michael]

LOL Max!  I did advise them to put the money aside in case the IRS wanted it back.  

Very frustrating.  Now the client is wondering if I did something wrong and I'm second guessing myself even though I went over the return several times and can't find anything wrong.

[Catherine]

On 8/25/2021 at 4:01 PM, Max W said:

we demand that the $3000.00. plus interest of $27.33 be returned to us within 15 days

Had something like this happen to a client some years ago. We got interest waived because he held (and never cashed) the check - knowing the IRS would want the $$ back. Our stance that he never cashed the check meant he never made use of the funds and so there was no call for interest.  But that only has a chance of working if you hold the check.

[Max W]

Good point, Catherine

[Sara EA]

This is what happens when the IRS is given more and more to do, facing sudden tax law changes and pressure to "get the money out there," using antiquated computer systems and not having enough staff.  If any one of us was facing this at our jobs, we'd quit.  IRS can't do that but can't do all that congress demands of it without the resources.  I agree with the Taxpayer Advocate who for years has beseeched congress to adequately fund the agency.

[Patrick Michael]

On 8/28/2021 at 7:51 PM, Catherine said:

Had something like this happen to a client some years ago. We got interest waived because he held (and never cashed) the check - knowing the IRS would want the $$ back. Our stance that he never cashed the check meant he never made use of the funds and so there was no call for interest.  But that only has a chance of working if you hold the check.

Not possible. Direct Deposit.

[grandmabee]

any advanced child tax credit?  they are making up for missed July payments by adding them to the remaining monthly payments.

[TexTaxToo]

8 minutes ago, grandmabee said:

any advanced child tax credit?  they are making up for missed July payments by adding them to the remaining monthly payments.

I wondered that too, but it would take a lot of kids to get a $3000 advanced payment!

Due to an error, ITIN holders were not sent July payments.  Their August payments were increased, as the plan was to split the missed July payment among the remaining months.  That plan got criticized, so the new plan is to issue the remainder of the July payment separately, and go back to the normal amounts for the remaining months.  Just so you know.

[Patrick Michael]

16 hours ago, grandmabee said:

any advanced child tax credit?  they are making up for missed July payments by adding them to the remaining monthly payments.

No kids.  No EITC.