Stimulus Update: 4 Reasons the IRS May Ask for Money Back

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KEY POINTS

  • If the IRS sent a stimulus check you were not due, they may ask for you to return the funds.
  • If the IRS has its facts wrong, you have a right to dispute the claim.
  • As long as you're honest with the agency, the IRS can be surprisingly easy to work with.


To err is human.

Typically, the IRS has three years to audit our tax returns. If the tax agency finds a substantial error, they may add additional years. While the odds of an audit remain low, if you do find yourself audited and the IRS asks for the return of stimulus funds, here are the four likely reasons it happened.

1. You earned too much money

Each of the three stimulus checks were tied to an income threshold. Once that threshold was met, the amount of their stimulus check was reduced. Given the millions of checks that were deposited into bank accounts and mailed to home addresses, it's natural to assume that the IRS made mistakes by sending a check (or two) to someone who earned too much money to be eligible for payment.

One thing to keep in mind: Scammers are sure to jump on the stimulus bandwagon by pretending to be IRS agents. Their goal is to get personal information, like your Social Security number, home address, and banking information. The IRS will never contact you by phone, text, or an email, unless in response to a message you sent. If the IRS needs to contact you, you'll receive an old-fashioned letter (at the address listed on your last tax return).

2. You received money for someone who died

With more than 1 million Americans dead from COVID-19, it's natural that the IRS didn't have record of every death when it sent the first check. Let's say your spouse passed away in 2019 and you had not filed a 2020 tax return by the time the IRS began sending checks in April 2020. Because the IRS did not realize that your spouse was dead, the check that was sent included the $1,200 your spouse would have been eligible for if they were alive.

While it's doubtful that the IRS will come after anyone whose loved one died prior to 2020, it's good to know that it could happen.

3. You're a nonresident alien

Those individuals registered as resident aliens were eligible for all three stimulus checks. If you're a nonresident alien who received a check, the money must be returned to the IRS. If you have yet to do so, it's an issue the IRS can easily spot during a basic audit.

4. You received an "extra" payment

So many millions of checks were sent that it is possible that some people received more than one payment for the same round. Let's say you expected a stimulus payment of $1,200 but noticed two $1,200 deposits in your bank account. One of those is owed back to the IRS.

What to do if the letter shows up in your mailbox

As mentioned, you'll receive a letter from the IRS if it spots a problem with a previous tax return.

Read the letter carefully. If it appears the IRS has its facts wrong, dispute the matter. If it's clear that the IRS letter is correct, repay the money by making a check or money order out to the U.S. Treasury for the amount owed. Include your Social Security number or taxpayer identification number along with a note outlining why you're returning the funds.

If you do happen to receive a notification letter, don't panic. The IRS is surprisingly easy to work with as long as you're honest with them. If you don't have the funds requested, you can typically make a payment arrangement.

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