Another Double-Dipper?

[Janitor Bob]

Client and spouse with 4 kids filed MFJ for 2020...received $8,400 EIP3 and $6,300 ATC. For 2021, their MFJ return would be a Fed refund of $7,418. But if I file them MFS and split the EIP3 and ACTC between them...and give client all 4 kids, he gets CTC and EIP3 for a refund of $12,783....spouse does not need to repay ACTC because her income is only $11,000 and still gets her small Fed refund of $158.

This "double-dipping" just makes my head spin. Am I the only one that pauses and needs to re-confirm to themselves that this is actually allowed?

[Pacun]

26 minutes ago, Janitor Bob said:

Am I the only one that pauses and needs to re-confirm to themselves that this is actually allowed?

Maybe. I don't pause, I continue with the return and let them double dip. After so many changes, I face a reality "I don't make the laws". 

We will have a lot of very-unhappy people when it is time to collect back all those goodies by raising taxes. Ironically, there people making just above the limit, so currently don't benefit with all of these or some people don't have any children BUT when the tax raises come in a year or two, they will be hit hard. 

[Patrick Michael]

I am struggling with this too.  Not so much the ACTC because that seems pretty cut and dried.  But I can't find anything saying you can/can't double dip on EIP3.  I've been telling clients, and putting it in the engagement letter, that this is a gray area and they may not receive it, and if they do, they may have to repay it in the future.

Just another example of rushing legislation through without digging into the details and looking for unintended consequences. 

[Patrick Michael]

Just found this FAQ.  https://www.irs.gov/pub/newsroom/fs-2022-09.pdf?fbclid=IwAR36PKI8b58-pXS2L4B4asxNGUTLvbqM1-Tt6RFbzDodkxsWT7oYOm2m3aQ

 

Q E15.  Dependents: Can my  2021  Recovery  Rebate  Credit  include  an amount  for  a  qualifying  dependent  if  the dependent  received the  third Economic  Impact  Payment  or  someone  else  received the  third Economic  Impact Payment  for  the  dependent?   (added January  13,  2022)

A15.  Yes,  if  you  meet the eligibility  requirements  to  claim  the 2021  Recovery  Rebate Credit.  The  amount  of  your  credit may include  up  to  $1,400  for  a  qualifying dependent  you  are  claiming on  your  2021  return.   

[Randall]

21 hours ago, Patrick Michael said:

Just found this FAQ.  https://www.irs.gov/pub/newsroom/fs-2022-09.pdf?fbclid=IwAR36PKI8b58-pXS2L4B4asxNGUTLvbqM1-Tt6RFbzDodkxsWT7oYOm2m3aQ

 

Q E15.  Dependents: Can my  2021  Recovery  Rebate  Credit  include  an amount  for  a  qualifying  dependent  if  the dependent  received the  third Economic  Impact  Payment  or  someone  else  received the  third Economic  Impact Payment  for  the  dependent?   (added January  13,  2022)

A15.  Yes,  if  you  meet the eligibility  requirements  to  claim  the 2021  Recovery  Rebate Credit.  The  amount  of  your  credit may include  up  to  $1,400  for  a  qualifying dependent  you  are  claiming on  your  2021  return.   

So, if I read this correctly, the child who is no longer a dependent in 2021 can claim the $1400 credit on their 2021 return.  But the parents who claimed the child as a dependent in 2020 and received the $1400 for the dependent in their EIP3 does not have to pay it back on their 2021 return.  It seems the IRS FAQ site is treating the EIP3 and the Recovery Credit as two separate things.  Not just an advance of the same thing.  

[Pacun]

12 hours ago, Randall said:

So, if I read this correctly, the child who is no longer a dependent in 2021 can claim the $1400 credit on their 2021 return.  But the parents who claimed the child as a dependent in 2020 and received the $1400 for the dependent in their EIP3 does not have to pay it back on their 2021 return.  It seems the IRS FAQ site is treating the EIP3 and the Recovery Credit as two separate things.  Not just an advance of the same thing.  

Correct. IEP3 does not have to be repaid.. Advance child Tax credit doesn't have to be repaid if the person who received the monthly payments makes less than $40K.  AND the person claiming the exemption this year can claim the EIP3 since it didn't receive it in April. The advance child tax credit depends on other factors.

For example: You claimed a child from your current marriage. You receive $1,500 in advance. This year you don't claim that child but it is your turn to claim a child from your previous marriage who is 15 years old... Even if you make only $10K in income, you will have to "repay" those $1,500 by virtue of loosing the $1,500 that you would otherwise get for the child that you didn't claim last year. 

 

 

[Pacun]

It gets even better, for one child 6-18 years old,  you don't have to return any penny if your income is less than $50k. Once you start plugging in the numbers you will notice that the calculation doesn't start owing taxes until you consume the reminder of the $2,000 original child tax credit. 

You will understand better if you plug in the numbers but keep in mind that any one that made less than $50K will not return any child tax credit. If the advance child tax credit was more than $1,500 per child, then returning money might start at $44K

[Sara EA]

Does this mean that if you jointly received EIP3 for a dependent, each spouse is considered to have received half.  The one who doesn't claim the child got $700 too much and doesn't have to pay any back.  The one claiming the child gets an additional $700.  Unreal.

This from the Feb 10 IRS FAQ:

Q E11. Joint Economic Impact Payments: What if my spouse and I received a joint third Economic Impact Payment and
we are not filing a joint 2021 tax return? (added January 13, 2022)
A11. When third Economic Impact Payments were jointly issued to two spouses, each spouse must claim half the
payment when calculating the 2021 Recovery Rebate Credit if they are not filing their 2021 tax return jointly. Each
spouse must enter half the payment in the tax preparation software or on the 2021 Recovery Rebate Credit Worksheet.
If filing a joint return, you will include the total amount of the third payment issued to you and your spouse.

Q E15. Dependents: Can my 2021 Recovery Rebate Credit include an amount for a qualifying dependent if the
dependent received the third Economic Impact Payment or someone else received the third Economic Impact
Payment for the dependent? (added January 13, 2022)
A15. Yes, if you meet the eligibility requirements to claim the 2021 Recovery Rebate Credit. The amount of your credit
may include up to $1,400 for a qualifying dependent you are claiming on your 2021 return.

[Patrick Michael]

10 hours ago, Sara EA said:

Does this mean that if you jointly received EIP3 for a dependent, each spouse is considered to have received half.  The one who doesn't claim the child got $700 too much and doesn't have to pay any back.  The one claiming the child gets an additional $700.  Unreal.

This from the Feb 10 IRS FAQ:

Q E11. Joint Economic Impact Payments: What if my spouse and I received a joint third Economic Impact Payment and
we are not filing a joint 2021 tax return? (added January 13, 2022)
A11. When third Economic Impact Payments were jointly issued to two spouses, each spouse must claim half the
payment when calculating the 2021 Recovery Rebate Credit if they are not filing their 2021 tax return jointly. Each
spouse must enter half the payment in the tax preparation software or on the 2021 Recovery Rebate Credit Worksheet.
If filing a joint return, you will include the total amount of the third payment issued to you and your spouse.

Q E15. Dependents: Can my 2021 Recovery Rebate Credit include an amount for a qualifying dependent if the
dependent received the third Economic Impact Payment or someone else received the third Economic Impact
Payment for the dependent? (added January 13, 2022)
A15. Yes, if you meet the eligibility requirements to claim the 2021 Recovery Rebate Credit. The amount of your credit
may include up to $1,400 for a qualifying dependent you are claiming on your 2021 return.

That's how I am reading too.  I have a family with 6 kids under the age of 17 who will be getting over $10,000 more filing separately.    

[Abby Normal]

2 hours ago, Patrick Michael said:

That's how I am reading too.  I have a family with 6 kids under the age of 17 who will be getting over $10,000 more filing separately.    

But with one kid, the increased tax from filing separately might more than offset the extra $700 gained.

[Randall]

On 2/9/2022 at 11:09 AM, Patrick Michael said:

Just found this FAQ.  https://www.irs.gov/pub/newsroom/fs-2022-09.pdf?fbclid=IwAR36PKI8b58-pXS2L4B4asxNGUTLvbqM1-Tt6RFbzDodkxsWT7oYOm2m3aQ

 

Q E15.  Dependents: Can my  2021  Recovery  Rebate  Credit  include  an amount  for  a  qualifying  dependent  if  the dependent  received the  third Economic  Impact  Payment  or  someone  else  received the  third Economic  Impact Payment  for  the  dependent?   (added January  13,  2022)

A15.  Yes,  if  you  meet the eligibility  requirements  to  claim  the 2021  Recovery  Rebate Credit.  The  amount  of  your  credit may include  up  to  $1,400  for  a  qualifying dependent  you  are  claiming on  your  2021  return.   

So if the two parents aren't married but live together with one child, they can switch who claims the child in 2021.  The father claimed the child in 2020.  Received the EIP3 for the child.  In 2021, can the mother claim the child, receive the EIP3 for the child and the father does not have to pay it back?  Is this correct?  The father received half the child credit in advance, $1800.  The mother will receive the full $3600 in 2021 but the father will have to pay back the $1800 advance.  Is this correct?  But someone posted that the advance child credit would not have to be paid back if income is low enough.  I'm not seeing this on the 8812 and worksheets.

[Lion EA]

That's all correct, Randall. Someone else can confirm how the repayment protection plays out in ATX.

[kathyc2]

2 hours ago, Randall said:

I'm not seeing this on the 8812 and worksheets.

Part III of 8812

[Randall]

11 hours ago, kathyc2 said:

Part III of 8812

Thanks.  I was overlooking line 30.  Once I entered number 1 there, it shows he does not have to pay it back.  Whoa!!!

[KATHERINE]

Hi everyone, good morning! 

In above case, what status will the husband wants to : MFS, or HOH?  

Thank you!

Lan

[Pacun]

MFS.  That's the only choice for married and living in the same house, besides MFJ. 

Remember that the rules for HH have not changed at all.

[KATHERINE]

10 minutes ago, Pacun said:

MFS.  That's the only choice for married and living in the same house, besides MFJ. 

Remember that the rules for HH have not changed at all.

Hi Pacun, I agreed with you.   If they did two MFS, then, split and take advantage of ability of double dipping is nothing wrong now, it is allowed.  Then if divorced parent with rotation of custodial every other year, then, they will benefit a lot for this.    How IRS is going to prevent that?

Thank you!

Kate 

[Pacun]

The IRS doesn't need to prevent that.  The IRS only follows the laws and if the laws have flaws, the IRS doesn't have the ability to "prevent" people from applying the law and taking the credits handed to them.

Our elected officials are the ones that handed all the goodies and we have to take advantage. Too bad that to benefit, you MUST have one or more children.  EIC, Child Tax Credit and child care credit are the winners in 2021.

[Christian]

I had a grandparent couple come in this week. In 2019 they apparently claimed two grandsons living with them as dependents. In 2021 they got a deposit of $5,600 EIP3. The grandfather dropped one of the dependents for 2020 and the Service disallowed his second one due to a filling error but sent the former dependent $1,400 after notifying him of his dependency change. The grandfather filed a 2020 return claiming $3,600 in UNPAID EIP3 payments apparently thinking he had been cheated by the Service but this was denied. I don't know about the rest of you but I am encountering what I had earlier feared namely massive misunderstandings of the law and blank expressions when clients are asked how much EIP3 amounts they got. If the client can't provide proof they received the payments I add it to their refund and the Service sorts it. No one to date has received the letter noted by the Service indicating the EIP3 they got and of course everyone has thrown away the one which came with the payment when or after receipt.

[mcb39]

I really hammered my blog early on with instructions to look for and keep those letters from the IRS.  Honestly, we have not had a single client to date who did not bring them in.

[jklcpa]

Yes, clients have to be trained. Mine are either supplying the letters or telling me what they received. I also had the first one come in with both spouse's letters for the ACTC.

I will say that last year, and will be the same this year too, that I did my absolute best to ascertain the correct information for inclusion on the returns for the EIPs and for the correct taxation of the unemployment. All of my clients opted to wait and to file correct returns for the unemployment after the law change AND programs were updated.

I don't want my clients' returns ending up in limbo needing correction, IRS human intervention, or for my clients to receive notices. My clients hire me me for the best job and advice I can give them, and that will never include "file it and let the IRS sort it out" way of dealing with these issues.  This is especially true now more than ever with the IRS backlog, lack of staff, and difficulty of contact.

[Lee B]

Curious, what do you do when the client insists they did not get EIP3 and the IRS says they did?

[jklcpa]

1 hour ago, cbslee said:

Curious, what do you do when the client insists they did not get EIP3 and the IRS says they did?

Was that addressed to me?

If so, as I said, "I did my absolute best to ascertain the correct information" and that would have included further discussions with clients as to timing and methods of payment from the Treasury, and instructing them where and how to look in their records or on the IRS website.  In the end, once my clients were better informed and looked for the payments, none of my clients had the issue you described, and I believe that the returns were filed accurately.

What I read last year from some preparers was they were getting the returns out the door and filed quickly, took whatever the client said as valid information without question, and were going to let the IRS sort it out and correct it later.

That "get 'em out the door" mentality included the unemployment issue too instead of waiting for the programming update. I gave my clients the choice and again, I explained that this could cause delays in processing if they had to wait for IRS corrections.  All of affected my clients wanted to wait for the programming to be updated, and none had difficulties with refunds being delays or returns being held in limbo.

 

[Pacun]

2 hours ago, cbslee said:

Curious, what do you do when the client insists they did not get EIP3 and the IRS says they did?

I had a client that insisted that the IRS didn't send him $1,400. I asked him to check his bank for the months of April 2021, May and June.  He found that the IRS had deposited $1,400.

Another told me the same story. I asked him, have you filed for the last two years and he said "yes, you have filed for me electronically (sometimes.. I mean most of the time, I don't know who is who). I went to my records and I remember that the last two years he was all kisses and hugs with his girlfriend. I said, where is your girlfriend and he said, she left with another man... I politely said "call that guy that he took your girlfriend and your EIP3 because you signed a paper to have your deposit be sent to her account and the IRS uses the last bank account to send the stimulus".  We both started laughing and he that was the end of the conversation. 

In this case, the IRS is right or at least the computer issued a check or direct deposit. I have not found one that is wrong but a few of my clients need to be reminded where the money went. 

[mcb39]

4 hours ago, jklcpa said:

Was that addressed to me?

If so, as I said, "I did my absolute best to ascertain the correct information" and that would have included further discussions with clients as to timing and methods of payment from the Treasury, and instructing them where and how to look in their records or on the IRS website.  In the end, once my clients were better informed and looked for the payments, none of my clients had the issue you described, and I believe that the returns were filed accurately.

What I read last year from some preparers was they were getting the returns out the door and filed quickly, took whatever the client said as valid information without question, and were going to let the IRS sort it out and correct it later.

That "get 'em out the door" mentality included the unemployment issue too instead of waiting for the programming update. I gave my clients the choice and again, I explained that this could cause delays in processing if they had to wait for IRS corrections.  All of affected my clients wanted to wait for the programming to be updated, and none had difficulties with refunds being delays or returns being held in limbo.

 

We had a "Hold" box last year for the unemployment issue, once it was announced.  We also had to wait for Wisconsin to update their forms as WI did not follow the protocol of the IRS on this issue.  This year, so far, I have not had a single client come in without the letter from the IRS regarding the EIP and none of them have argued with what their letter said.  SO FAR!!!