Have you received a lower refund than the amount you expected for the 2020 return? Did you get a letter in the mail stating that your refund was reduced to $0? Know that you are not alone! This year many taxpayers have received reduced refunds and letters explaining that the IRS recalculated the credits claimed and determined that only a partial refund was allowed. In some cases, the full refund was disallowed.
This seems to be caused by the Recovery Rebate credit claims. Since thousands of US citizens are claiming credit for stimulus payments that they did not receive, the IRS sent all such claims for additional review and recalculated the returns. In some cases, the IRS records state that a stimulus payment was issued and that portion of the payment is not released.
For example, if Mr Jones is claiming Recovery Rebate credit for both stimulus payments, his return states that he is due a refund of $1800, which is the first stimulus payment of $1200 and $600 for the second. If the IRS did issue the second payment to him but he never received it, the IRS will send him a reduced refund of $1200 and a letter explaining the changes.
Some cases, however, have no logical explanation and are due to IRS error. An example of this could be when the IRS ignore one or two dependents and reduce the credit to the amount it would be if those dependents were not on the return.
What is the solution? In all cases, it is worth reviewing your return to see if you mistakenly claimed Rebate credits for a stimulus payment that you already received. If you see that all is in order, the next step is to call the IRS. If the issue is simply an IRS error, the representative whom you speak to should be able to rectify it and release the missing portion of the refund.
If the difference is due to a lost check, the IRS may need to initiate a check trace. Once the check trace has run its course, if it is determined that the check was indeed lost in the mail, the missing amount should then be refundable.
In general, it is worth taking the time to understand your claim before you call, so that you are clear about the issue at hand. This way you will be able to clearly present your case when speaking to the representative, and yield better results.
So no need to panic when you receive that letter, know that you should be able to receive any credits you are eligible for, if only with some delay!
