The Cares Act provides for an extra $500 payment per dependent child under 17. Yet, many parents have said that although they received their $1,200, they did not get the extra $500 for each child, or they received money for one child but not for another. If their payments were legitimately short, the IRS says, parents will have to wait until they file a 2020 federal return to get their remaining stimulus funds.
That delay creates an odd situation for a subgroup of parents who, for reasons such as divorce, take turns claiming children in alternating tax years. In those situations, it appears the IRS will be sending two stimulus payments for the same child.
On Monday, the IRS issued a news release attempting to answer questions about why people’s stimulus payments might not arrive in the amounts they had anticipated. The release covered various scenarios in which a payment might be delayed or incorrect, including the $500 payments for dependents. “Parents who are not married to each other and do not file a joint return cannot both claim their qualifying child as a dependent,” the IRS said.
The agency also clarified that the taxpayer generally must be related to the child, live with them more than half the year and provide at least half of their support to qualify for the $500 benefit.
Here’s where things get confusing. In trying to reach as many people as possible, the IRS went back two years — to 2018 and 2019 — to pull tax returns and assess them for possible stimulus payments.
In one scenario, the qualifying custodial parent — designated as such for tax purposes — releases a dependency tax claim to the noncustodial parent. In such cases, whichever parent claimed a child on his or her 2019 return might have received the $500.
In its guidance document, the IRS said: “When the parent who did not receive an additional payment files their 2020 tax return next year, they may be able to claim up to an additional $500 per-child amount on that return if they qualify to claim the child as their qualifying child for 2020.”
This may be the situation for Dianne, a divorced mother from Virginia, who asked that her last name not be used out of privacy concerns. She and her ex-husband have shared custody and alternate claiming their son on their taxes. She gets even years. He gets odd years.
Although the IRS is using the 2018 and 2019 tax years to determine the stimulus payments, the financial relief is actually considered an advanced credit for 2020.
“My ex and I are on relatively good terms, but we don’t really talk about finances,” said Dianne, who has received her $1,200 based on her 2019 return, but not the additional money for her son. “If he got the $500, he would never tell me.”
For parents in a similar situation, if they qualify for the extra $500, they could claim it next year, according to the IRS guidance.
“I do feel kind of mixed about the double-dipping,” said Dianne, whose income has dropped significantly because of coronavirus shutdowns. “Frankly, I don’t think that it’s fair. But I’m sure it’s very difficult to tie one child to two separate households. However, if I’m entitled to the payment, I’m going to take it.”
The IRS also addressed confusion among a subset of stimulus recipients who filed an “injured spouse” claim over past-due child support. The law allows an “offset,” withholding stimulus funds from a spouse who owes back child support. The provision should only affect payments to that spouse. However, in some cases, the IRS mistakenly offset payments to both parents.
The IRS said it is working with the Bureau of the Fiscal Service, the Department of Health and Human Services, and the Office of Child Support Enforcement to address the issue. The injured spouse will receive his or her unpaid half when the matter is cleared up, the agency said.
It is difficult to expect perfection from a government in the grips of a pandemic. Even so, the federal stimulus effort seems to have brought more than its share of drama.