If you got a “Notice CP21C” from the IRS suggesting your stimulus payments were going to be used to pay off existing tax debt, don’t be alarmed, the letter was sent in error. The IRS won’t be garnishing your payment, whether you’ve received the check already or plan to claim the rebate as part of your tax return.
If you’re one of the 109,000 people that received the letter, you may have noticed something was amiss already, as it looks like the IRS accidentally dusted off a message from 14 years ago. It states:
We applied a credit to your 2007 tax account due to new legislation. We used (offset) all or part of your economic stimulus payment to pay your federal tax as the law allows.
It’s an unfortunate slip-up, as there’s been a lot of confusion about whether the stimulus checks or credits in tax returns could be clawed back or taxed by the IRS for unpaid tax bills or delinquent student loans. Rest assured this is not the case for the vast majority of taxpayers: the first stimulus payment can only be garnished for back child support, and the second stimulus payment can’t be garnished for any debt at all. The checks are not taxable, either.
“This notice is not accurate for anyone who received it. Since no payment was issued, no offsets occurred. We apologize for the confusion this may have caused. You can disregard the notice,” the IRS states, in their updated FAQ. The letter also suggests calling a general phone number to resolve this issue, but don’t bother—the phone line is nearly always swamped.
According to the Taxpayer Advocate Service, the letter was supposed to state that the IRS couldn’t issue the first check because the IRS hadn’t processed the taxpayer’s 2019 return and there was no 2018 return on which to base that payment. However, the solution is to claim the Recovery Rebate Credit on your 2020 tax return. For more information about claiming the credit, click here.