In response to the Covid-19 pandemic, the United States legislature has enacted the CARES Act to offer assistance to Americans during this economically unstable period. The premise of the Act is to assist the American worker and their families, small businesses, and job preservation during the pandemic in the hopes of stabilizing the economy until we are on the other side of this pandemic.
Part of the CARES Act is to provide an economic impact payment to qualifying individuals, also know as a stimulus check. The economic impact payments eligibility and disbursement are based upon tax payers that filed their taxes in the 2018 or 2019 tax years.
The IRS distributed stimulus checks by two different methods:
1) physical check which was mailed to the tax payer; or
2) directly deposited into the tax payer’s account. The way a person got the check depends on how they received any tax refunds in the past.
At this point in time, most Americans have received their stimulus check due to the COVID-19 crisis and if they haven’t, the IRS’s website can be very helpful in giving direction on how to receive it or check on the status of the stimulus check. With all of this money being sent out so quickly in an attempt to help the average person, some Americans are finding themselves in a quandary because they have received stimulus checks for their dead relatives.
Payments being sent to deceased individuals isn’t really such a surprise when you consider how quickly the Act was passed and how quickly the IRS had to work to get the payments out, but it is a bit unfortunate that the federal government apparently did not scrub the list against their own death records.
The focus was more on trying to lessen the impact of missed paychecks and the country shut down businesses. Within a few weeks after the Act was in place, a bulk of the stimulus checks were deposited or mailed out to tax payers. This was an oversight on the part of the CARES Act and one that did not become apparent until relatives and spouses of the deceased began to notice a payment of $1,200 in their loved one’s account or after they received a check in the mail directed to the deceased.
Now many Americans are facing the dilemma of what to do with this stimulus check.
While the treasury has said the money should be returned, they are only now starting to give directions on how to do it properly. While the initial fault may be on the part of the IRS for issuing the stimulus check to the deceased, no one currently knows what the legal ramifications could potentially be if that money is not returned. However, just because they may not have stated what the ramifications could be does not mean that the announcement is not coming in the near future.
COVID-19 is constantly changing and government agencies are having to react to new updates from medical professionals Currently, there is very little guidance on what to do with the money received for the deceased.
This is a new development that the IRS will likely address when the push to send out the stimulus checks has slowed down. In fact, Treasury Secretary Steven Mnuchin has already stated that the stimulus checks that have been issued to deceased taxpayers needed to be returned. To clarify, if a person passes away prior to receiving the payments, whether that be years, months or days, according to the Treasury Department, that stimulus money should be returned.
However, if you are waiting to hear a definitive announcement from the IRS about what to do and how to potentially return the money, the safest thing to do at this moment is not spend the money. If you want to wait for an announcement from the IRS and hold onto the money, you should save in in an account where it will not be spent.
So, for example, if you have autopayments coming out of an account, you may not want to keep your deceased relative’s stimulus money in that account. As tempting as it might be to use it to pay for bills while times are tough, the penalties from the IRS might be worse and you may have to repay the money in another way. Either hold onto the money in a separate account where it will not be spent or send the stimulus check back to the IRS; by doing this you can protect yourself from future legal recourse.
In evaluating options for our clients, we sought the advice of Kelly Green-Krist, a local CPA (https://www.greenkristcpa.com/) and she provided us with valuable insight into how to deal with such a payment:
Stimulus checks issued to deceased taxpayers need to be returned to the federal government, according to Treasury Secretary Steven Mnuchin. The Internal Revenue Service has already sent out nearly 90 million checks in a matter of weeks and one of the emerging issues is that some of the recipients are deceased. This is happening because the IRS is sending out checks to people who filed taxes in 2018 or 2019. The problem is some of the people on those tax returns have since died.
It is not clear that you are under any legal obligation to return the money sent to a person who died in 2018 or 2019, the tax years used by the IRS to determine eligibility for a stimulus payment. The CARES Act, which authorized the payments, had no language forbidding distributions to the deceased, nor did it stipulate ways to claw back money given to the dead.
In the absence of official guidance, the safest course of action would be to hold on to the money sent to a deceased taxpayer or return the check to the IRS until the IRS resolves the issue once and for all. For taxpayers located in North Carolina, mail the returned check to:
Memphis Refund Inquiry Unit
5333 Getwell Road
Mail Stop 8422
Memphis, TN 38118
For other states, the IRS mailing addresses can be found here (Q41): https://www.irs.gov/coronavirus/economic-impact-payment-information-center#more.
Should you choose to return the check to the IRS, a note should be included advising the IRS that the taxpayer is deceased and write “void” in the endorsement section on the back of the check. Be sure to mail the check with tracking so you can confirm receipt by the IRS. Do not send with a signature required though since there is no one at the IRS to sign and it will be returned to the sender.
If the stimulus payment was directly deposited into a bank account, the best course of action to take is to either keep the money in the bank account or submit a personal check payable to U.S. Treasury, write 2020EIP and the taxpayer identification number in the memo section of the check and a brief explanation of the reason for returning the EIP to the appropriate IRS location until the IRS or Treasury provides guidance on how to proceed.
In the meantime, if you are truly unsure of what to do with any funds received for the departed, it is best to hold those funds in your account and not use them. At the current time it is unclear if there will be tax consequences for the deceased person’s stimulus money being kept or if the IRS will eventually demand repayment. It is important to protect yourself and not find yourself in a position where you are required to pay the funds back and no longer readily have them.
We’d like to thank both Kelly Green-Krist, CPA in Cary, NC, and Catherine Mayo with Catherine’s Accounting in Oriental, NC for the information they provided in researching this issue.