Dear Mr. Premack: My father, a widower, has an account into which Social Security made his monthly deposit. He died on March 30 this year, and on the very next day a deposit appeared in his account from the Treasury marked “economic impact payment”. He had been quite comfortable and paying high taxes for years. His deposited amount was lower than we heard others were receiving. Was this deposited money the pandemic payment that Congress just authorized? Do I have to return the money, or does it stay in the account? – H.O.
This stimulus payment, authorized by Congress and President Biden under the America Rescue Plan Act of 2021, is in the nature of a tax credit. It started to be distributed in mid-March by direct deposit. The prior stimulus payment could only be direct deposited for those who had given the IRS direct deposit information on their 2019 or 2020 tax return. This stimulus payment was direct deposited for those same people, but also for anyone receiving Social Security, Railroad Retirement, SSI, or VA benefits. The amount of the refund is reduced for taxpayers with higher incomes.
Since the 2021 payment is a tax credit, the 2021 law says that any recipient who was alive on January 1, 2021 is entitled to the funds. That was the date the tax credit vested. Consequently, your father’s death prior to actual receipt of the funds does NOT require that you return the funds to the government. If he had died on December 31, 2020 or earlier then he would not be entitled to the payment and you would have to return it to the government.
What if you were the surviving spouse, and the government issued a check payable to both you and your now deceased spouse? If your spouse died before January 1, 2021 your spouse should not be included, his name should not be on the check, and you should only get the payment for yourself. If your spouse died after January 1, 2021 your spouse should be included. If his name is on the check (if issued by check instead of direct deposit) you may be able to deposit the check by endorsing it “for deposit only”. If the bank will not accept the check because the deceased spouse’s name is on it, then you should return the check to the government with a letter asking that it be reissued in your name only. Instructions for returning the check are found here: https://www.irs.gov/newsroom/questions-and-answers-about-the-third-economic-impact-payment-topic-i-returning-the-third-economic-impact-payment#return-eip.
The prior stimulus payments were different. Those payments could be retained only if the recipient was still living on the date the payment was issued. Read more about that process in my column from June 1, 2020 at https://www.premack.com/post/did-your-deceased-relative-get-a-stimulus-check-from-the-irs-what-now.
A similar question asked me recently was how the current stimulus payment would be treated by Texas Medicaid? Her mother is in a nursing home, has low assets and low income, and has qualified for Medicaid assistance to pay the nursing home bill. Texas recently announced that the stimulus payment is excluded when determining eligibility for Medicaid and when determining the amount that Medicaid pays toward the nursing home bill.
Further, there will be no Medicaid disqualification imposed for gifting the amount of the stimulus payment, so long as the gift is made during the 12 months immediately after the payment is received. If the Medicaid patient holds onto the money, then decides to gift it away after the 12-month period has expired, Medicaid will impose a penalty.
Paul Premack is a Certified Elder Law Attorney, handling Wills and Trusts, Probate, and Elder Law issues. He is licensed to practice law in Texas and Washington.