Recovery Rebates:  I’ve Got a Song Ain’t Got No Melody?

Recovery Rebates:  I’ve Got a Song Ain’t Got No Melody?

I’ll start out today with apologies to Billy Preston.

Be patient while I explain why Billy Preston is my guest artist for this week’s blog.

Let’s begin by understanding some terms relating to recovery rebates which are floating around:

1. Economic Impact Payments (EIP). The IRS defines this term as the money taxpayers received early (advance rebates for lack of a better term) for 2020 or 2021 based on information the IRS had from the most recently filed returns. You will often see acronyms such as EIP-1, EIP-2, and EIP-3.
2. Recovery Rebates. These are credits (could be more than EIP payments but can’t be less than $0) which are calculated (reconciled) based on the actual 2020 and 2021 returns submitted to IRS to balance out against the EIP payments.
3. Stimulus Payments. Term used by politicians, media, and others supposedly as synonyms to EIP payments and recovery rebates.  They are neither. However, if you do a web search for stimulus payments, our friends at Google will take you (eventually) to an IRS website where we get information and are introduced to another term in the rebate arena, Plus-Up Payments.
4. Plus-Up Payments. As taxpayers received their third EIP (the most recent one) it may have been based on 2019 instead of 2020 tax information. If the IRS is now in possession of the 2020 actual return information, and the taxpayer is due more money, the IRS is making the calculation and sending it out now. I believe Plus-Up Payments are only being done for the third round of EIP payments and were (are) not being done for the 2020 payments

“Will you go ‘round in circles?  Will you fly high like a bird up in the sky?” 

The Plus-Up payments will be a problem for next Spring, so for the time being let’s concentrate on the 2020 returns still on extension which are getting closer in your rearview mirror as October 15 quickly approaches.

We have noticed many postings on our Facebook page noting that the IRS has been changing recovery rebates due taxpayers (the reconciliation on the tax return) by indicating the amount of EIP payments received (the advance rebates if you will) were either wrong or the 2020 tax return reconciliation is wrong. This circumstance is causing angst among taxpayers as well as tax professionals, not to mention the errors are delaying taxpayer refunds even longer.

While we have a few weeks to go, what can you do to make the submission of those extended returns more accurate and quickly processed?

1. Reach out to your taxpayers on extension and ask them to be certain they provide the letters (IRS Notices 1444 and 1444-B) IRS sent about the EIP payments with the rest of their data needed to file their 2020 returns.
2. After the taxpayer tells you they don’t have the letters, ask them to check their bank statements from April through September 2020 (EIP payment 1 timeframe), their bank statements from December 2020 and January 2021 (EIP 2 payment time frame). While they’re searching, they might as well get the bank statements from March to now (EIP-3 payments as well as Plus-Up Payments along with IRS Notice 1444-C) so you can start to gather their data for the 2021 filing. To further muddy the waters, taxpayers may have been sent their EIP payments on debit cards, thought they were junk mail, and threw them away.
3. Assuming the taxpayer tells you that’s too much to do, I suggest you strongly encourage the taxpayer to create an online account with IRS. I believe this access will become crucial now and, in the future, to having proper access to client records.
4. Establish your own Tax Pro Account with the IRS. Your client will need to authorize you to access their records when they create their own account, but this is the future of data retrieval and accuracy, trust me!

My understanding is it might take 5-7 business days to get fully up and running online so time is of the essence.

Nothing from nothing leaves nothing…you gotta put down something if you want to be in the mo-nee…

My apologies to Billy Preston for taking liberty with his lyrics. There’s an interesting factoid regarding the IRS correcting our reconciliation of the recovery rebates. They will alter the calculations if an entry has been made but if a taxpayer has left the recovery rebate area blank, the IRS will not calculate a recovery rebate for the taxpayer(s).  I understand that this makes no sense. For almost everyone reading I’m certain you use software, and I don’t know of any way to make my software leave the recovery rebate screens blank, but you could have a new client contact you after perhaps submitting a paper filed return so now you know why a recovery rebate may not have been calculated for this taxpayer. By the way, I believe entering $0 as the amount of EIP payments received in your software is an entry which the IRS will recalculate.  Apparently entering $0 is not the same as leaving the recovery rebate line blank.

Hopefully Billy’s catchy tunes will provide some earworms to get you through the next month. Here’s another little factoid about Billy which has nothing to do with taxes. He was often referred to as the fifth Beatle since he played keyboards on Let It Be, The White Album, and Abbey Road. So in honor of his accomplishments, your clients and I ask you….Don’t Let Me Down.

The Beatles – Don’t Let Me Down – Bing video

Stay thirsty for knowledge my friends….

By Tom O’Saben, EA