Owe Child Support? The IRS Can Claim Your Recovery Rebate Credit

A small provision in the COVID-19 relief bill allows the IRS to withhold funds from your Recovery Rebate Credit.

If you owe back child support, have not received your stimulus check yet, and plan to claim it through the Recovery Rebate Credit on your 2020 tax return, you may be in for a surprise. That's because the government has the right to keep the Recovery Rebate of any taxpayer owing child support.

The loophole

To date, Americans have received either one or two stimulus checks. Anyone meeting the income criteria has practically been guaranteed a stimulus check per the wording of the COVID-19 stimulus bills. Even if you owed back taxes or some other type of government debt, you were still due stimulus money. When Congress wrote the second bill, it even specified that those owing money to a debt collector or in back child support were still eligible for a stimulus payment.

But this is where things get murky. One generally overlooked provision in the December stimulus bill (the one responsible for the current round of stimulus checks) gives the IRS permission to keep money. The bill says that if you owe child support, back taxes, or any government debt, the IRS has the right to collect on that debt by keeping your Recovery Rebate Credit.

How it would typically work

Say you changed your bank account in 2020 and the IRS sent your stimulus check to your old bank. By law, that bank was required to return the funds to the IRS. Or, if you have moved since filing your last income tax return, it is possible that the IRS still has your old address on file and could not locate you.

If you did not receive your stimulus funds (or only received a partial payment for some reason), the next best way to receive those funds is to claim the Recovery Rebate Credit on your 2020 Form 1040 or 1040-SR. If you are due a refund, the IRS will add the stimulus funds to the amount due. If you owe money on your 2020 taxes, the funds will offset the amount owed. For example, if you owe $2,000 and are due $600 in stimulus funds, the amount due will become $1,400.

But that's only if you don't owe child support, taxes, or any other government debt. Because of the provision in the latest stimulus bill, any funds due to you through the Recovery Rebate Credit will be kept by the IRS to cover those debts.

What's more

If you owe money to a debt collector, your bank, or any other lender, they may also make a claim on stimulus funds you attempt to recover through a Recovery Rebate. Of course, they would have to know that you did not receive your stimulus check. It's a bit of a stretch to imagine that banks are tracking whose payments they returned to the IRS and cross-checking those names against customers who owe them money. It's even more of a stretch to imagine that a debt collector would know that you've claimed funds through a Recovery Rebate. Still, it's essential to understand that it could happen and plan accordingly.

Suppose you owe back child support or are in debt to a creditor or the government. In that case, you're likely feeling financial stress -- particularly if COVID-19 has prevented you from earning enough money to cover your obligations. If you are in financial trouble, there are resources available to help.