A small provision on the COVID-19 relief bill allows the IRS to withhold funds from your recovery rebate balance.

If you are paying back Child Support, have not yet received your Stimulus Check, and are planning to claim it on your 2020 tax return using Recovery Rebate Credit, you may be surprised. That’s because the government has the right to keep the refund discount from a taxpayer who owes child support.

The gap

So far, Americans have received either one or two stimulus checks. Anyone who met the income criteria was virtually guaranteed a stimulus check according to the wording of the COVID-19 stimulus bills. Even if you owed taxes or some other type of government debt, you still had to pay stimulus money. In fact, when Congress wrote the second bill, it was stipulated that those who owed money to a debt collector or child support would still be eligible for an incentive payment.

But here it gets cloudy. A generally overlooked provision in the December stimulus bill (which is responsible for the current round of stimulus checks) gives the IRS permission to keep money. The bill states that if you owe child support, tax back payments, or government debt, the IRS has the right to collect that debt by keeping your recovery balance.

How it would normally work

For example, let’s say you changed your bank account in 2020 and the IRS sent your stimulus check to your old bank. By law, this bank was required to return the funds to the IRS. If you’ve moved since filing your last income tax return, it is possible that the IRS still had your old address on file and couldn’t find you.

If you haven’t received your stimulus funds (or received only a partial payment for whatever reason), the best way to get those funds is to claim the recovery balance on your 2020 Form 1040 or 1040-SR. When you receive a refund, the IRS adds the stimulus funds to the amount due. If you owe money on your 2020 taxes, the funds will offset the amount owed. For example, if you owe $ 2,000 and there is $ 600 due in stimulus funds, the amount due is $ 1,400.

But that is only possible if you do not owe any child benefit, taxes or other national debt. Based on the provision in the latest Stimulus Bill, any funds due to you under Recovery Rebate Credit will be withheld by the IRS to cover this debt.

What’s more

If you owe money to a debt collection agency, bank, or other lender, they may also claim economic funds, which you want to get back through a recovery discount. Of course, they should know that you didn’t receive your stimulus check. It’s a bit difficult to imagine banks keeping track of whose payments they returned to the IRS and comparing those names to customers who owe them money. It’s even harder to imagine a debt collector knowing that you claimed money through a recovery discount. Still, it’s important to understand that this can happen and plan accordingly.

Say you owe child support or you are in debt to a creditor or the government. If so, you are likely to feel financially burdened – especially if COVID-19 has prevented you from making enough money to meet your commitments. If you are in financial trouble, resources are available to help.