It's tax season, and the scammers are back.
It's that time of year again: With an extended tax deadline of May 17 on the horizon, scammers are spreading disinformation to American taxpayers in order to obtain their personal and financial information. This time, they're targeting them through their COVID stimulus checks — but experts say there are ways for filers to protect themselves.
An Internal Revenue Service Criminal Investigation Division special agent, Sarah Kull, told the Detroit Free Press that there has been a steep increase this year in the number of phone calls and text messages purporting to be the IRS contacting filers about COVID relief payments. Some scammers are impersonating Federal Trade Commission officials demanding filers pay taxes on their stimulus checks upfront in order to receive them.
Stimulus checks are not taxable income.
Seth Hanlon, a senior fellow at the Center for American Progress and specialist in tax policy, told the American Independent Foundation, "If anyone tells you your stimulus payment is taxable, that's wrong. And it could be a scam. They are not taxable. The technical reason is they are tax credits that are paid out as tax refunds, so it would be like owing taxes on your tax refund."
Moreover, he added, "I think always people should know that if someone purports to be the IRS calling, that's not going to happen. The IRS doesn't contact people like that, so it's virtually certain to be a scam if someone claims to be the IRS."
Rebecca Poutasse, a spokesperson for the Center on Budget and Policy Priorities, told the American Independent Foundation that because stimulus checks are technically advance payment of refundable federal tax credits, they won't affect tax filing.
"The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 tax return," she said. "A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs."
David Super, a professor of law and economics at Georgetown University Law Center, said, "The stimulus checks people received last summer, in January, and under the new recovery plan are all tax-exempt."
He added, "At a time when we all should be pulling together, it is unfortunate that unscrupulous individuals are trying to scare people with misinformation about these payments. The coronavirus and the economic downturn have done more than enough damage. We do not need these scammers piling on."
Elizabeth Lower-Basch, director of income and work supports at the Center for Law and Social Policy, told the American Independent Foundation that the first red flag was callers claiming to be the IRS: "The IRS will never email you or call you to demand immediate payment. If you owe money, you will get a letter in the mail. Anyone calling and demanding money or gift cards is a scammer."
Lower-Basch added that while taxpayers should not claim their stimulus payment on their 2020 taxes, it's important to file in a timely fashion to ensure the IRS has the taxpayer's current address and banking information. "The IRS made the first two rounds of payments based on the information it had from 2018 or 2019 tax returns," she said. "If you are eligible for a larger payment based on your 2020 information, you can claim that credit when you file your 2020 return."
Lower-Basch said people might be owed a higher stimulus payment if they lost a job during the pandemic, had a new baby in 2020, or were claimed as someone's dependent in 2019 but not in 2020.
Due to the pandemic, many jobless Americans are concerned they may have to pay excessive taxes on their unemployment benefits, which are considered taxable income. But Hanlon says they're likely to owe less than they think.
Hanlon said that unemployment benefits are not taxable if the recipient made less than the standard tax deduction in 2020 — $12,400 for single filers and $24,800 for joint filers. He said the $1.9 trillion COVID relief package recently passed by Congress and signed into law by President Joe Biden exempted an additional $10,200 of unemployment benefits for any tax filer whose adjusted gross income was $150,000 or less.
This week, the IRS expanded the number of people eligible for the unemployment exemption, changing the rules so that unemployment benefits do not count toward the $150,000 income cap as they originally did in the American Rescue Plan.
Hanlon cautioned that if a filer paid too much in taxes on unemployment benefits, the IRS advises them not to file an amended return as the overpayment will automatically be refunded.
As the filing deadline approaches, Hanlon cautioned cash-strapped filers that before they pay for an online tax preparation service, they should be aware that free filing services exist, including at the IRS website. There are also other free online services to assist people with low and moderate incomes, along with volunteer services to help them as well as seniors and military personnel.
Published with permission of The American Independent Foundation.