Many Americans faced a dilemma last year when they received $1,200 stimulus payments for their deceased spouses or other family members. They were left wondering what to do with the money and whether they had to send it back.
The coronavirus pandemic has left many filers in a difficult tax situation for the 2021 filing season after their family members unexpectedly passed away from the disease over the past year. The U.S. currently has 29.2 million confirmed COVID-19 cases and more than 528,000 people have lost their lives, according to Johns Hopkins University data.
Last spring, the IRS asked family members of the deceased to return the money after roughly 1.1 million payments, totaling almost $1.4 billion, were mistakenly sent to dead people in the first round of checks, according to a report from the Government Accountability Office.
The Treasury and the IRS rushed to deliver badly-needed aid to millions struggling Americans and failed to consult death records. Then in December, the stimulus package that approved the second round of $600 checks to eligible Americans said that only recipients who died in 2019 or earlier had to return the payments.
COVID-19 relief package:$1,400 checks, $300 bonus for federal unemployment benefits
Tax season 2021: 9 costly mistakes to avoid
Now some individuals who died in 2020 or 2021 may still qualify for stimulus checks through the Recovery Rebate Credit if they didn’t receive Economic Impact Payments — the stimulus checks — according to Lisa Greene-Lewis, CPA and tax expert for TurboTax.
Here’s what you need to know:
Does someone who died qualify for the payment?
In some cases, yes. If you’re preparing a return for a deceased relative, some individuals who passed away in 2020 or 2021 may qualify for the Recovery Rebate Credit if they didn’t receive a payment but were eligible.
You must be a U.S. citizen or U.S. resident alien, weren’t claimed as a dependent of another taxpayer and have a Social Security number valid for employment.
As long as the person died in 2020, didn’t receive a stimulus check but was eligible based on their 2020 income when their return is filed, then the person can claim the Recovery Rebate Credit on the return, according to Greene-Lewis.
In December, the Tax Relief Act of 2020 increased the adjusted gross income phaseout amount for a qualifying widow or widower from $75,000 to $150,000. That means widows and widowers whose income was more than $75,000 may qualify for the Recovery Rebate Credit.
How do I claim the Recovery Rebate Credit?
If you file a 2020 return for an individual who died in 2020 or 2021, the IRS says that you should complete the Recovery Rebate Credit Worksheet in the Instructions for Form 1040 and Form 1040-SR to determine whether you can claim it.
Look for the Recovery Rebate Credit that is listed on Line 30 of the 1040 Form for the 2020 tax year.
Do they qualify for a third stimulus check?
Taxpayers who died in 2020 don’t qualify for a third stimulus payment, according to Alison Flores, principal tax research analyst at The Tax Institute at H&R Block. Trusts and estates are also ineligible to receive a third direct payment, she added.
What to do with payments sent to deceased relatives
If your spouse died before Jan. 1, 2020, and you received one or both stimulus payments last year that included an amount for your deceased spouse, the IRS says to return the decedent’s portion of the payment
Relatives were asked to return the checks because those people passed away prior to 2020 and the IRS went by 2019 or 2018 tax returns when they sent the checks in the first round. They wouldn’t have been eligible since they died before the stimulus checks were sent out for 2020.
If you are married and filed a joint tax return, but your spouse passed away before they received their payment, you only need to give back the portion of money that was for your spouse, according to the IRS.