As Economic Impact Payments (“EIP 2”) begin to arrive in bank accounts and mailboxes, they may also be arriving to people who died before receiving their payments.
Some sources have estimated that up 1.1 million deceased people received checks in the first round of EIP payments in spring 2020. Some of these checks were even made payable to the decedent, such as to “John Doe, Deceased” or “the Estate of John Doe.” The IRS was slow to issue guidance regarding these payments, creating significant confusion for surviving spouses and the administrators of estates.
However, the IRS has adopted a bright-line rule for how to handle EIP 2 payments to decedents. The bad news is that the payments must be returned if the taxpayer died before receiving their check. The good news is that returning the payments is simple.
Who Must Return Payments, and How Much Must be Returned?
If you received a payment for a taxpayer who died before they received the check or direct deposit, that money must be returned. If the payment was made to a joint-filing couple in one sum, and one of the spouses has deceased, then that spouse’s half of the payment must be returned.
So, for example, if John and Jane filed their taxes jointly and John passed away before receiving the EIP 2 payment, then John’s half of the payment must be returned up to a maximum of $1,200.00 – that means that if John and Jane had no dependents and received a total payment of $1,200.00, then Jane must return $600.00. If John and Jane had two dependent children and received a total payment of $2,400.00, then Jane must return $1,200.00. If John and Jane had four dependent children and received a total payment of $3,600.00, Jane would have to return $1,200.00 and keep the remaining $2,400.00.
If the decedent was not a joint filer, the math is much simpler – the whole payment must be returned.
The IRS has – right or wrong – adopted a bright-line rule about the receipt of the payments. If the decedent was alive when the check was received, then the EIP can be kept. If the decedent had passed away, then the check must be returned. So if John and Jane received their check on 1/5/21 and John passed away on 1/6/21, then John’s portion can be kept; if John passed on 1/4/21 and the check arrived on 1/5/21, John’s portion must be returned.
How to Return a Payment
If the payment was made by paper check to a single filer, the recipient must write “void” in the endorsement field of the check and return it to the IRS. Include at least a brief note explaining that the decedent passed before receipt of the EIP; optionally you may include a copy of the decedent’s death certificate and any letters of authority appointing the recipient to manage the decedent’s estate.
If the payment was made to a joint filer or by direct deposit to a single filer, you will need to write a check for the appropriate amount and mail it to the IRS. The check should be made to the U.S. Department of the Treasury and indicate 2020EIP and the deceased taxpayer’s tax ID in the memo line. Again, include at least a brief explanation of the reason for the return.
For checks to decedents in Ohio, the IRS mailing address is:
Kansas City Internal Revenue Service
333 W Pershing Rd.
Kansas City, MO 64108
Do not staple, paperclip, or otherwise bind the check to any other items included in the mailing.
While the bright-line rule is easy to administer, it could create issues as to timing. Suppose John and Jane received their check on the 5th and John passed on the 5th – does the check need to be returned? There is no specific guidance on this issue, and while some cases have been reported from the first round of EIPs, it is not clear what the final determination was. However, the safe (and probably IRS-approved) answer is yes. It would be very difficult to prove that the check was received before time of death, and the IRS would likely take the view that someone passing away the day the check is received did not survive to receive the check.
Another issue that may seem immediately unfair is the division of the tax into half for joint filers with dependents – if the EIP is supposed to include a credit for children, then why would a surviving spouse with two credited children have to return half of the payment? Put another way, if John and Jane had two children, and John passed before the EIPs even issued, Jane would have been entitled to $1,800.00 ($600.00 for her + $600.00 x 2, for each child). The answer is that the EIPs are not actually “payments” in the conventional cash transfer payment sense of the word – they are tax credits advanced against John and Jane’s 2020 income tax return. Because John and Jane file jointly, the credit is attributable to the two of them as taxpayers; their children do not receive cash on their own account, but rather John and Jane receive a tax credit each for their children. Thus, the IRS has determined that the credit is properly allocated to the two taxpayers, rather than the four family members. Since John has deceased, his one-half of the credits must be returned.
Contact The Law Offices of Aric J. Stano, LLC, for assistance with decedent’s estates.
If you need legal assistance with the return of an EIP or any other aspect of a decedent’s estate, Attorney Aric Stano is prepared to assist you. Contact our offices today to schedule a consultation.