Uncle Sam wants some of his stimulus money back.
Back in March, Congress authorized stimulus payments as part of the massive Coronavirus Aid, Relief and Economic Security (CARES) Act. Generally, the payment is $1,200 for single filers or $2,400 for joint filers; plus $500 per qualified child, but these amounts are phased out based on income.
The IRS began distributing the money in April to taxpayers with direct deposit information on file from 2018 and 2019 returns and then followed up with paper checks. Now the program is in full throttle.
But suppose a person has died since they filed their last tax return? The IRS has discovered that it has mailed checks to deceased people by mistake. It’s unclear how many such checks have been delivered, but it’s thought to be significant, because about 2 million people in the U.S. die each year.
Now the IRS is asking for checks paid to deceased individuals to be returned by those who have their hands on the money. It recently updated its Frequently Asked Question (FAQ) section for stimulus payments at https://www.irs.gov/coronavirus/economic-impact-payment-information-center#more by stating that someone who has died isn’t eligible for the payment and providing the following instructions.
Paper checks should be returned by writing “void” in the endorsement section on the back of the check. The check should mailed back to an IRS office depending on the state where the recipient resides. The IRS also requests the person to include a note explaining the reason for returning the check.
For direct deposits received on behalf of deceased taxpayers, the IRS asks that the person send a personal check or money order to the appropriate IRS office (see FAQ #41), payable to the U.S. Treasury. They should write “2020EIP” and the taxpayer’s Social Security number or individual taxpayer identification number on the check and add a brief explanation for the return.
Similarly, incarcerated individuals aren’t eligible for stimulus payments, so checks sent to inmates should also be returned. Presumably, these checks were based on tax returns filed prior to the individual being incarcerated. A spouse who isn’t in prison person can keep his or her portion of the money.
The same basic rules apply to undocumented immigrants. Uncle Sam wants this money back, too.
Finally, there have been reports of individuals receiving checks paid to the benefit of a “deceased” individual who is very much alive. There’s been no official comment on this.
What will happen to you if you don’t return a payment as instructed? The IRS hasn’t addressed this issue yet, but most legal experts don’t foresee any penalty.