Stimulus payments, also referred to as advance tax credits or Economic Impact Payments (EIPs), have been the unfortunate subject of misinformation and confusion. A prime example originates with the CARES Act1
, which authorized the first EIP and stipulated that an estate was not an “eligible individual” but failed to address the treatment of a deceased individual
(which is a separate taxable entity from an estate). As an EIP is effectively a tax refund (not income), this resulted in a gap in guidance as to the eligibility of a deceased individual to receive an EIP.
Due to the IRS’s use of 2018 and 2019 tax returns in determining EIP eligibility, the receipt of EIPs by individuals who died in 2019 or early 2020 is understandable. Still, the lack of clear legal guidance regarding the return (or retention) of an EIP received by such a decedent has been the cause of significant debate. Happily, this gap has been bridged by the Consolidated Appropriations Act, 20212
(which authorized the second EIP) and was effectively mirrored in the American Rescue Plan Act of 20213
(which authorized the third EIP).
Impact of Date of Death on Eligibility
In most situations, the issue will be decided by the date of death (assuming that all other eligibility requirements are met). If an individual died prior to January 1, 2020, they would be ineligible for all three EIPs. If they survived to January 1, 2020, they would be eligible for the first and second EIP. If they survived to January 1, 2021, they would be eligible for all three EIPs. This is true, even if the individual was deceased by the time the EIP was received.
Why is this the case? Title II, subtitle B, section 2201 of the CARES Act served to amend title 26 of the U.S. Code (subtitle F, chapter 65, subchapter B) by inserting a brand-new section 6428, titled “2020 Recovery Rebates for Individuals.” However, it didn’t end there. Division N, title II, subtitle B, section 272 of the Consolidated Appropriations Act, 2021 (aka the “COVID-related Tax Relief Act of 2020”) then inserted Section 6428A just after Section 6428. This was followed more recently by Title IX, part 4, subtitle G, part 1, section 9601 of the American Rescue Plan Act of 2021, which inserted Section 6428B just after Section 6428A.
In short, while section 6428 did not specifically address the eligibility of deceased individuals, section 6428A(f)(2)(A) provides for a specific cutoff date, stating in part that “any individual who was deceased before January 1, 2020, shall be treated for purposes of applying subsection (g) in the same manner as if the valid identification number of such person was not included on the return of tax for such taxable year”. Similar language appears in 6428B(g)(2)(B)(i), providing a specific cutoff date of January 1, 2021 for the third EIP (of $1,400).
No Valid Identification Number? No EIP
If a “valid identification number” is not included on the tax return, what difference does that make? Subsection (g) of section 6428A answers that question, stating in part that “[i]n the case of a return other than a joint return, the $600 amount in subsection (a)(1) shall be treated as being zero unless the taxpayer includes the valid identification number of the taxpayer on the return of tax for the taxable year” (with subsection (a)(1) being the section that authorizes the second EIP of $600).
In plainer English, an individual must have a valid identification number (aka, a Social Security Number) to be eligible for an EIP. If the individual was not alive during that taxable year, they had no valid identification number and are therefore ineligible.
Focus Point: Date of Death
If the individual survived to the date of January 1, 2020, they have a valid identification number for the 2020 taxable year and are therefore eligible for the second EIP. Though debate continues, it is my personal opinion that a decedent who survived to January 1, 2020 is also eligible for the first EIP, as both of the 2020 EIPs could be claimed as a recovery rebate credit on the decedent’s 2020 tax return. (See below.) Similarly, if the individual survived to the date of January 1, 2021, they have a valid identification number for the 2021 taxable year and are therefore eligible for the third EIP.
Tax Refund Status (and the Benefits Thereof)
|Date of Death
|On or after 1/1/2020
||1st or 2nd EIP
|On or after 1/1/2021
An EIP is simply a tax refund paid in advance. It is not income. The tax refund itself is called a recovery rebate credit (“RRC”). An RRC can be claimed on the individual’s 2020 Form 1040 or 1040-SR, so long as the individual has not already received their full RRC amount (in the advance form of an EIP). This is expected to apply to the individual’s 2021 Form 1040 or 1040-SR as well. Though the same calculation is used for both EIPs and RRCs, the underlying tax information differs. (Due to timing, the EIP calculations were based on tax returns from 2018 or 2019, whereas the RRC calculations are based on actual 2020 tax returns. This can lead to different calculated results.)
As EIPs (and RRCs) are tax refunds, the provisions of 26 USC §6409 apply. This means that an EIP is not to be counted as income (at all) and is not to be counted as a resource (for a period of 12 months from receipt) when determining eligibility for benefits or assistance under any Federal program or State or local program financed in whole or in part with Federal funds. That includes the Medicaid program and the Supplemental Security Income (SSI) program.
Deceased at Time of Receipt
If an individual survived to the date of January 1, 2020, but died prior to receiving the first or second EIP, it has no impact on their eligibility. The corresponding RRC could still be claimed on the decedent’s 2020 Form 1040 or 1040-SR, and the EIP is simply an advance payment of that RRC. This was confirmed in the 1040 and 1040-SR instructions for 2020 (regarding Line 30), which state in part:
The recovery rebate credit was paid out to eligible individuals in two rounds of advance payments called economic impact payments. The economic impact payments were based on your 2018 or 2019 tax year information. The recovery rebate credit is figured like the economic impact payments except that the credit eligibility and the credit amount are based on your 2020 tax year information. If you didn’t receive the full amount of the recovery rebate credit as economic impact payments, you may be able to claim the recovery rebate credit on your 2020 Form 1040 or 1040-SR. Generally, you are eligible to claim the recovery rebate credit if in 2020 you were a U.S. citizen or U.S. resident alien, weren't a dependent of another taxpayer, and have a valid social security number. This includes someone who died in 2020, if you are preparing a return for that person.
No Return of Excess EIP Required
If an individual received an EIP amount that exceeded the amount they should have received (based on their actual 2020 tax return), the IRS has provided the following explicit guidance as of 3/22/2021:4
No, there is no provision in the law that would require individuals who qualify for a payment based on their 2018 or 2019 tax returns, to pay back all or part of the payment, if based on the information reported on their 2020 tax returns, they no longer qualify for the payment or would qualify for a lesser amount of the payment.
Medicaid and EIPs
Regarding the Medicaid program specifically, the Centers for Medicare & Medicaid Services (CMS) have released two primary sets of COVID-19 FAQs, the first being an all-in-one FAQ5
and the second offering a rundown of recent updates,6
which confirm that 26 USC §6409 applies, and that an individual can give away their EIP (ie transfer the EIP without receiving something of equal value in return) without incurring a restricted Medicaid coverage period (a penalty period). The caveat is that the gift must occur during the EIP’s 12 month period of exemption. Why? Medicaid’s transfer of asset rules7
apply to the transfer of income and resources. During the 12 month exemption period the EIP qualifies as neither income nor a resource, meaning that the transfer of asset rules will simply not apply. The COVID-19 FAQs also stipulate that Medicaid Estate Recovery has no claim to an EIP if the Medicaid beneficiary’s death occurs during the EIP’s 12 month exemption period, as the estate recovery rules8
are similarly superseded by 26 USC §6409 for the month in which the individual receives the EIP and the 12 months following.9
In other words, an individual has 12 months to spend or give away an EIP, without endangering their Medicaid eligibility.
Social Security and EIPs
26 USC §6409 applies equally to the SSI program. The Social Security Administration Commissioner released a statement confirming that “[the SSA] will not consider economic impact payments as income for SSI recipients, and the payments are excluded from resources for 12 months.”10
The SSA’s FAQs11
confirm that an EIP is not a Social Security or SSI benefit, though the IRS will typically issue the EIP via the representative payee (“RP”) where one is involved. As a consequence, while an RP is authorized to receive the EIP, they are not required to account for the EIP when completing their annual accounting form. In effect, the RP should discuss the use of the EIP directly with the beneficiary (or their legal representative), and should provide the EIP to the beneficiary upon request; if the beneficiary asks the RP for assistance in spending the EIP, the RP can “provide that assistance outside the role of a representative payee.”12
Garnishment and Debts
Regarding garnishment and debts, the first EIPs could not be seized by state or federal agencies (with the exception of past-due child support). However, once deposited to a bank account, the EIP was not protected from federal or state offsets, or garnishment by creditors.13
The second EIPs were better protected. There, the legislative act required financial institutions to use unique identifiers (coding) with direct EIP deposits and permitted account holders to request exemption status when depositing an EIP check. This effectively allowed the second EIPs to be tracked by the bank, providing continued protection from garnishment regarding child support, debt collectors, and federal debts even after deposit (though auto-payments could remain an issue unless cancelled by the account owner). The third EIPs were authorized via budget reconciliation, and consequently do not involve the same level of protection. Effectively, the third EIPs can not be seized by state or federal agencies (including past-due child support),14
but there is no unique identifier requirement.
As part of the overall process, various states have sought to provide additional protections through legislation, executive orders, and other guidance and directives.15
As example, the Ohio Attorney General released a formal notice that the protections of ORC §2329.66(A)(12)(d) applied to payments under the CARES Act, protecting EIPs as payments in compensation for loss of future earnings.16
Massachusetts took a different tack, issuing emergency regulations focused on unfair and deceptive debt collection practices.17
Various financial institutions have also voluntarily enacted internal policies aimed at allowing individuals to retain access to their full EIP following deposit.18
Further state and federal protections can also apply, regarding contract law and resident or consumer rights. For instance, CMS issued a press release to state that the seizure of a resident’s EIP by a skilled nursing facility could be a violation of 42 CFR 483.12, and considered a misappropriation of resident property.19
This was followed by an IRS news release addressing the same topic.20
Further Nuances Apply
Lastly, it should be noted that nuances do apply to each of the legislative acts, and that specific fact patterns matter. Nuances include the eligibility of adult dependents, certain creditor protections, and special rules for members of the armed forces (regarding joint tax returns).
The Coronavirus Aid, Relief and Economic Security Act of 2020, “CARES Act,” Pub. Law 116-136, 134 Stat. 281, https://www.congress.gov/bill/116th-congress/house-bill/748/text/enr (accessed 4/11/2021).
The Consolidated Appropriations Act of 2021, Pub. Law 116-260, https://www.congress.gov/bill/116th-congress/house-bill/133/text (accessed 4/11/2021).
The American Rescue Plan Act of 2021, Pub. Law 117-2, https://www.congress.gov/bill/117th-congress/house-bill/1319/text (accessed 4/11/2021).
First Economic Impact Payment Questions and Answers, Q J3, https://www.irs.gov/newsroom/first-economic-impact-payment-questions-and-answers-topic-j-reconciling-on-your-2020-tax-return (accessed 3/30/2021).
COVID-19 Frequently Asked Questions (FAQs) for State Medicaid and Children’s Health Insurance Program (CHIP) Agencies, page 65, Last Updated January 6, 2021, https://www.medicaid.gov/state-resource-center/downloads/covid-19-faqs.pdf (accessed 5/11/2021).
COVID-19 Frequently Asked Questions (FAQs) for State Medicaid and Children’s Health Insurance Program (CHIP) Agencies, pages 15-16, Released January 6, 2021, https://www.medicaid.gov/state-resource-center/downloads/covid-19-new-faqs.pdf (accessed 3/30/2021).
See 42 USC 1396p(c).
See 42 USC 1396p(b).
COVID-19 Frequently Asked Questions (FAQs) for State Medicaid and Children’s Health Insurance Program (CHIP) Agencies, page 16, Released January 6, 2021, https://www.medicaid.gov/state-resource-center/downloads/covid-19-new-faqs.pdf (accessed 3/30/2021).
Commissioner of Social Security Shares Update about COVID-19 Economic Impact Payments for Beneficiaries, https://blog.ssa.gov/commissioner-of-social-security-shares-update-about-covid-19-economic-impact-payments-for-beneficiaries/ (accessed 4/11/2021).
Third Economic Impact Payment, https://www.ssa.gov/coronavirus/eip3/ (accessed 5/11/2021).
Questions and Answers about the First Economic Impact Payment – Topic D: Receiving My Payment, Q D1, https://www.irs.gov/newsroom/questions-and-answers-about-the-first-economic-impact-payment-topic-d-receiving-my-payment (accessed 5/11/2021).
Questions and Answers about the Third Economic Impact Payment – Topic G: Receiving My Payment, https://www.irs.gov/newsroom/questions-and-answers-about-the-third-economic-impact-payment-topic-g-receiving-my-payment (accessed 5/11/2021).
Leticia James NY Attorney General. “Multistate Letter to Treasury re Garnishment and CARES Act,” https://ag.ny.gov/sites/default/files/04.13.20_multistate_letter_to_treasury_re_garnishment_and_cares_act_final.pdf (accessed 5/11/2021).
Notice of Applicability of State Law Exemption to Payments Under The Federal CARES Act, https://www.ohioattorneygeneral.gov/Files/Briefing-Room/News-Releases/STATE_LAW_EXEMPTION_FOR_WEB.aspx (accessed 3/30/2021).
Mass.gov. “Unfair and Deceptive Debt Collection Practices During the State of Emergency Caused by COVID-19, https://www.mass.gov/doc/ma-reg/download (accessed 5/11/2021).
Governor Murphy Announces Stimulus Payment Protection for New Jerseyans Receiving Federal Relief During COVID-19 Pandemic, https://www.nj.gov/governor/news/news/562021/approved/20210324d.shtml (accessed 5/11/2021).
Nursing Home Residents’ Right to retain Federal Economic Incentive Payments, CMS Press Release dated June 11, 2020, https://www.cms.gov/newsroom/press-releases/nursing-home-residents-right-retain-federal-economic-incentive-payments (accessed 4/11/2021).
IRS alert: Economic Impact Payments belong to recipient, not nursing homes or care facilities, IRS press release dated June 16, 2020, https://www.irs.gov/newsroom/irs-alert-economic-impact-payments-belong-to-recipient-not-nursing-homes-or-care-facilities (accessed 5/11/2021).