Recovery Rebate Credit -- IRS says we owe them extra money.

[beisbol]

My wife and I didn't receive stimulus payments, as our AGI was above the limit. However, TT's RRC worksheet calculated that we could take a credit on our return, based on the following entries in the worksheet:

• Line 7 = $2400
• Line 10 = $1200
• Line 11 = [an amount > $150000]
• Line 13 = [Line 11] - $150000
• Line 14 = 5% of Line 13  (this amount is less than the $2400 in Line 7)
• Line 15 = [Line 7] - [Line 14]

The amount on Line 15 was entered on Line 30 of our 1040-SR as a credit. The IRS's Notice CP11 says that we shouldn't have taken that credit.

Everything I read in TT and IRS literature implies that the stimulus payments were an advance on a 2020 tax credit. There was no indication that the credit had an income ceiling, only that the advance did. Our AGI wasn't far enough over the limit to completely offset the (not-advanced) amount of $2400, so we took the difference as a credit, which the IRS negated.

Am I reading this wrong? If so, why didn't TT know how to skip the RRC worksheet? And why doesn't the documentation from either TT or IRS make this even slightly clear? It seems to me that -- if taking the credit is improper -- the error was TurboTax's, not ours.

[4more]

Received the same letter.  Either the IRS is in error or Turbo Tax has a major bug.

Plenty of new comments/posts stating the same issue on the older thread below:

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-is-there-an-error-in-the-reco...

[sa20191]

I have a similar situation. 

I correctly entered the amounts for the stimulus checks based on the amounts deposited into my Bank Account. 

the next page says 

"Great News! You Qualify for the Recovery Rebate" and states that based on my AGI (which is above 150,000) and the amounts received for the total stimulus that I qualify for a $439 credit, which was placed on line 30 on form 1040. 

The IRS is now saying I owe them. I received a letter in the mail. 

I believe this is an Error in Turbo Tax? 

[OhHowIHateTaxes]

Yep Got the same letter too! Our AGI is clearly in excess of the $150k limit so I'm not seeing why the program says we qualify. I went into Turbotax and "Continued My return" and it again told me Great News! You qualify for the Recovery Rebate Credit. Kinda pissed I have to send the IRS a check for an additional $1,300 PLUS a $12.40 interest charge!!!!

Hey Intuit can I get my $12.00 back?????

[4more]

In may case I looked at the pdf save of my worksheet and for some reason Turbotax added an extra $1200  on line 8.  Also, the worksheet shows I have no answers for questions #3 and #4.  One of those answers enables Turbotax to ignore the limits for Recovery Rebate.  I did not see anything in the TT gui that would allow me to change the answers to No.  Certainly TT should not have assumed blank/null answers means a yes.  If those questions were mandatory TT should have forced an answer.

[DoninGA]

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@4more wrote:

In may case I looked at the pdf save of my worksheet and for some reason Turbotax added an extra $1200  on line 8.  Also, the worksheet shows I have no answers for questions #3 and #4.  One of those answers enables Turbotax to ignore the limits for Recovery Rebate.  I did not see anything in the TT gui that would allow me to change the answers to No.  Certainly TT should not have assumed blank/null answers means a yes.  If those questions were mandatory TT should have forced an answer.

---

As stated on the Recovery Rebate Worksheet for Line 2 -

If YES - Skip lines 3 and 4, and go to line 5

As stated on the Recovery Rebate Worksheet for Line 8 -

$1,200 if married filing jointly and you answered “Yes” to question 2 or 3.

[Opus 17]

First, regarding the stimulus itself.  It was always a tax credit on the 2020 tax return, that's in the CARES act spelled out (and the round 2 payment in the Rescue Plan Act) and the credit was always reduced at incomes over $75,000 (or $150,000 for married filing jointly).   The IRS was directed to make advance payments if possible, using 2019 or 2018 tax return information, but the stimulus payments must be reconciled on your tax return.  This will also address situations such as a credit for a child born in 2020, who was not a dependent in 2019 and wouldn't get a payment.

If you received a larger advance payment (stimulus check) than you are qualified for on your tax return (based on your filing status, income and dependents), then you don't get an additional credit, but you don't have to repay the extra.  If you got a smaller payment than you are entitled to, the difference will be added to your tax return as a credit on line 30.

However, you must accurately report the amount of stimulus payment you received, for Turbotax to determine the correct credit, if any.  If you received a stimulus check, you generally will get no, or only a reduced, credit.  If you did not receive a stimulus check, but the IRS thinks they sent a stimulus payment to you, you can't get the missing payment on your tax return, you have to trace the missing payment instead.

@beisbol 

Your recovery rebate worksheet numbers indicate that you told Turbotax you received no stimulus checks, so you claimed the amount you were entitled to (based on your income) as a credit.  Did you receive a stimulus check in round 1 or round 2?  Or, does the IRS think you received a payment?  You would have received a letter 1444 and a letter 1444-B giving the amounts of the stimulus checks.  You were supposed to enter those numbers in Turbotax.  If the IRS sent stimulus payments, you can't claim it on your tax return, even if you didn't receive the payment (such as, it went to the wrong bank account, you lost the debit card, or the payment was withheld for a past child support debt).  You have to trace the missing payment instead.  Review the FAQs on this page to see how to trace a missing payment.

https://www.irs.gov/newsroom/questions-and-answers-about-the-first-economic-impact-payment-topic-f-p...

[Opus 17]

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@OhHowIHateTaxes wrote:

Yep Got the same letter too! Our AGI is clearly in excess of the $150k limit so I'm not seeing why the program says we qualify. I went into Turbotax and "Continued My return" and it again told me Great News! You qualify for the Recovery Rebate Credit. Kinda pissed I have to send the IRS a check for an additional $1,300 PLUS a $12.40 interest charge!!!!

Hey Intuit can I get my $12.00 back?????

---

This is what the section looks like on Turbotax.  If you said "NO" to the first question (did you get a payment), then Turbotax would claim a rebate based on your income.

The credit is reduced 5% for every $1000 of income over $150,000 (for married filing jointly).  This means, for example, that if your income was $190,000, you would be entitled to $400 for round 1 ($2400 base amount minus 5% of $40,000) and zero for round 2.

It sounds like you told Turbotax you did not receive a stimulus, and the IRS disagrees.  If you think you did tell Turbotax the correct amount of your stimulus payments but the program recorded zero anyway, you can try filing a claim for the accuracy guarantee.

https://ttlc.intuit.com/community/charges-and-fees/help/what-is-the-turbotax-100-accurate-calculatio...

[4more]

@DoninGA   Yes, my answer to 2 was yes.  3 and 4 were skipped and have no/null answers.  TT ignored the limits and said I have $775 coming.  The IRS says no!  I received no stimulus and entered so.  The IRS is disallowing this credit.

I'm assuming line 8 was the problem and should be 0 instead of $1200.  If I reduce one of the lines by $1200 I would get a 0.

8 Enter: @ $600 if single, head of household, married filing separately, qualifying
widow(er), or if married filing jointly and you answered "Yes" to question 4, or
@ $1,200 if married filing jointly and you answered "Yes" to question 2 or 3 8

All other calculators I looked at don't have a similar entry such as line 8.  Line 5 is set to $2400.

Too many people have the same problem. 

[Opus 17]

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@4more wrote:

@DoninGA   Yes, my answer to 2 was yes.  3 and 4 were skipped and have no/null answers.  TT ignored the limits and said I have $775 coming.  The IRS says no!  I received no stimulus and entered so.  The IRS is disallowing this credit.

I'm assuming line 8 was the problem and should be 0 instead of $1200.  If I reduce one of the lines by $1200 I would get a 0.

8 Enter: @ $600 if single, head of household, married filing separately, qualifying
widow(er), or if married filing jointly and you answered "Yes" to question 4, or
@ $1,200 if married filing jointly and you answered "Yes" to question 2 or 3 8

All other calculators I looked at don't have a similar entry such as line 8.  Line 5 is set to $2400.

Too many people have the same problem. 

---

The credit is not eliminated at AGI over $150,000, it is phased out at a rate of 5% per $1000.   Line 5 is the maximum amount eligible for EIP 1 ($2400 for MFJ) and line 8 is the maximum eligibility for EIP 2 ($1200 for MFJ).  Those numbers on the worksheet are correct if you told Turbotax you received no stimulus payment or less than the maximum amount.  Where you may be running into a problem or confusion is with the calculations of limitations based on income.  

You also don't give us enough details, what is $775? If that is the total on line 30, that is the correct rebate if your AGI is about $182,500 and you never received a round 1 stimulus payment.

What are the amounts on:

line 11 (your AGI)

line 16 (first stimulus payment)

line 17 (rebate due from first stimulus)

line 19 (second stimulus payment)

line 20 (rebate due from second stimulus)

(Also, I assume you don't have any dependents, otherwise the maximum rebates would be higher.  Let us know if you did claim dependents.)

Lastly, it may be that the IRS thinks they issued a stimulus payment, which will preclude you from claiming the rebate also.  You can log into your online IRS account and check to see what payments the IRS thinks they issued.

https://www.irs.gov/payments/view-your-tax-account

If the IRS thinks they issued a payment but you never received it, you have to trace the missing payment.  You can't claim it as a rebate. 

[sabe999]

I agree this is TT's fault.

We had very similar issues and received an IRS letter dated 9/6 demanding $650 + $6.01 in interest charges back to the date we filed. TT should have known and calculated correctly since our income didn't vary much at all from 2019 to 2020 and all stimulus funds were correctly reported.  The difference is in the payments and credits, which IRS calculates differently than TT, buy $650 in IRS' favor.

[AdrianAlbrecht]

How should i respond to this audit threat?  Can you provide the contact for the audit defense or how to respond to IRS?

Regards,

Adrian

[Opus 17]

@AdrianAlbrecht 

Did you read any of the prior comments in this discussion thread?  Your first step should be to determine what you actually claimed on your tax return, and what the IRS thinks you received as a stimulus payment. You need to check your IRS online account for information about your stimulus payments, or review your letter 1444 and 1444-B which were sent to you around the same time as the stimulus payments.

Once you have your tax return, your IRS online account information, your 1444 letters, you can determine whether you made a mistake on your tax return or whether the IRS has made a mistake in its calculation.  If you believe the IRS made a mistake, you can send them a letter with copies of your documentation and explaining your calculations. If you agree that you made a mistake in filing your tax return, then you owe the money.  

If you believe that TurboTax made a mistake, you can apply for the accuracy guarantee to cover your interest and late fees. TurboTax will not pay your tax, because you always owe your own correct income tax payments, but TurboTax will pay interest and penalties if TurboTax made a calculation error.  However, be aware that the TurboTax interview was very clear in asking whether or not you received a stimulus payment, and how much you received. TurboTax would only calculate a rebate if you told TurboTax that you did not receive the proper stimulus check in the mail.  If the IRS thinks they sent you a stimulus payment but you never received it for some reason, you can’t claim the rebate on your tax return. You must trace the missing stimulus payment instead.

[GeorgeDenseff]

During the first weeks of 2020 tax season TurboTax was adding stimulus payments to everyone and you had to click a field to show that you were not entitled to or had already received your stimulus.

That was corrected, but if you had put your data in during that time period, you had to manually make changes to keep stimulus payments from added to your refund.

[xmasbaby0]

@ljk2y Did you skip the Federal Review section where you were supposed to enter the stimulus payments you already received?   The IRS has had to cross check every return with an amount on line 30 for the recovery rebate credit because so many people made mistakes with that credit.

TurboTax has no way to know whether you received the 1st and/or 2nd EIP payments.   When you prepared your tax return you were asked in the Federal Review section if you had received those payments.   If you said you did not receive the payment(s) then the stimulus payment was put on line 30 of your tax return as a recovery rebate credit.  The IRS cross checks every return with an amount on line 30.  If the IRS sees that they already issued the EIP payment(s) to you then they adjust your refund.

Check your IRS account---does the IRS say they sent you a payment that you did not receive?  If so you can ask for a trace to be put on the payment.

https://www.irs.gov/payments/view-your-tax-account

If you were issued a payment and have not received it, see How do I request a payment trace to track my first or second Economic Impact Payments?