IRS goes after tax refunds, child tax credit, and stimulus checks: What to do if IRS says you owe them?
Fourth stimulus check update: $3,600 payments being issued by IRS as agency warns taxpayers say some will owe it all back
The latest round of payments as part of the child tax credit advance are heading out in a couple weeks. The window to opt out of November’s payment is closing. The total payments released by the IRS between July and December will be worth $1,800, with another $1,800 on the line when taxpayers file 2021 income tax returns.
Angelina Marques is a Toledo, Ohio resident who said getting stimulus checks was straight forward. Even the process of receiving early child tax credit payments was simple enough.
But what happens if the IRS says you owe child tax credit money?
Marques ensured her family was enrolled, updated necessary personal information, and waited for the money. The payments came each month. A total of $600 each time for her two children. “It was fine. Everything went fine with the IRS. Then, I received an email, followed by a letter.”
She ignored the email, assuming it was a scam. Marques still isn’t certain whether the email was a scam or not – but it outlined a scenario where she would need to repay the child tax credit in the spring. Marques’ family falls well below the income limit imposed by the child tax credit.
“Then we received a letter in the mail, talking about an error on our tax return last year,” Marques explained. That letter involved her tax refund, which had been administered without issue. Due to a technical error, the IRS indicated that she owed a significant portion of her refund back.
“We don’t have that money anymore,” she said. “It’s gone. And it’s not like we could even figure out what the error was. They gave us no information – just a threat that if we didn’t pay back $3,600 that we’d face fines and penalties.”
After consultation with her tax professional, they opted to wait it out. “We have kids and expenses. We don’t have several thousand dollars sitting around waiting to give back to the government because they say an error was made.”
Worse yet, the letter indicated no recourse for the family. Their tax professional indicated that repaying the amount the IRS said they owed first, then reclaiming it on next year’s taxes would be the most effective way to deal with the situation. “We can’t do that though. We don’t have the money,” Marques added.
What should you do if the IRS comes after your child tax credit or tax refund?
That is the best course of action if you get a math error letter, or audit notice from the IRS. The agency is working through the process of catching up on an historic backlog, which spans millions of tax returns.
If you receive a letter indicating that you’ve been overcompensated for stimulus, child tax credit, or tax refund payments – pay it back. Experts say the fines and fees associated with ignoring can cost thousands. Worse yet, once a notice is ignored an appeal isn’t possible.
Paying for the IRS error up front, while inconvenient, may give you the opportunity to reclaim those funds when appealing to the agency.
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