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I received two $1,400 stimulus payments because I was also claimed as a dependent. Should I give one back?

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Two questions about one too many stimulus checks:

Dear Quentin,

I’m confused. My grandparents claimed me on their 2019 taxes as a dependent. They received the third stimulus check for me. When the third stimulus checks were released, my grandparents had not filed their 2020 taxes yet, so they received stimulus money for me as their dependent.

However, I filed my own 2020 taxes, and I am no longer their dependent. The Internal Revenue Service also sent me a third stimulus check. Who should notify the IRS about this overpayment, and how? I can’t seem to find a scenario anywhere to cover this issue.

Granddaughter

Dear Quentin,

I need clarification because from what I have read, we should receive a stimulus payment for our adult dependent. She is currently on Social Security, and we claim her as a dependent. We support her needs year-round, and she lives with us.

She started receiving Social Security Disability Insurance in December 2020. We did not receive any stimulus money on payments in the first two rounds for her, but I know that was correct because the guidelines for the age of dependents has changed under the most recent round of payments.

However, she also received $1,400 in her bank account where her SSI gets deposited. Should she have received a payment? Should we have? We haven’t filed our 2020 tax return yet, and I do plan on claiming her as a dependent.

I’m thinking this is a duplicate payment and should be paid back to the IRS. I can’t find any information on what to do, or if it’s correct that the taxpayer and adult dependent will receive a stimulus check. So again, I’m thinking the IRS paid her in error.

Mother

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Granddaughter & Mother,

The Moneyist column has received many letters on this issue. The $1,400 economic stimulus payment is not a loan. This third stimulus check is an advanced tax credit on your 2021 taxes, and calculated based on your 2020 taxes. You both need to decide which check was sent in error.

Mother, you should consult your daughter before claiming her as a dependent to ensure you are both on the same page. Granddaughter, you should alert your grandparents of your plans to file your own taxes, and in that case they should return the payment.

You both received one check too many because those claiming the adult as a dependent had not filed their 2020 taxes, so the IRS used previous tax filings as a guide. You obviously cannot be claimed as a dependent and file a tax return yourself and expect a payment. It’s one or the other.

According to H&R Block, you may receive a letter (CP87A) from the IRS stating that your dependent was claimed on another return. “It will tell you that if you made a mistake, to file an amended return, and if you didn’t make a mistake, do nothing.”

Want to read more?Follow Quentin Fottrell on Twitterand read more of his columns here.

“The other person who claimed the dependent will get the same letter,” H&R Block adds. “If one of you doesn’t file an amended return that removes the child-related benefits, then the IRS will audit you and/or the other person to determine who can claim the dependent.”

You can return the money via check or money order with your Social Security number or taxpayer ID of the recipient, made payable to “U.S. Treasury.” Those who received a paper check and did not cash it can write “void” on the back of the check, and mail it back to the IRS. Read more here.

Individuals making less than $75,000 a year in adjusted gross income will receive $1,400. The payments decrease for individuals earning $75,000 and up — and they phase out completely for those making $80,000 or more and couples making $160,000 or more in adjusted gross income.

The issuance of payments has not been a straight line. One man told me he was “punished” by the government for being responsible because he filed his taxes early — and only received $200. Some taxpayers say they’ve received stimulus checks for dead relatives.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

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My fiancée’s mother asked us to raise her 2 kids, as we live in a good school district and she has a gambling addiction — then she claimed their stimulus checks

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Dear Quentin,

Last year, in February, my fiancée’s stepfather passed away. After his passing, my fiancée’s mother asked both her and me to raise her younger sons, as we had recently purchased a new home, have degrees and will be able to provide a great area for their education, such as help with homework and the ability to communicate with their schools or doctors. My fiancée’s mother cannot read, write or speak English, and she has an addiction to gambling at casinos.

COVID-19 hit soon afterward. We both were let go from our jobs, and are making it by with unemployment and savings.

With that said, in March of this year, we filed taxes and my fiancée claimed both of her brothers since they had lived with us for almost nine months of last year. We received both of their stimulus payments a few days later. About three weeks later, we found out that my fiancée’s mother had also received the stimulus payments, even though she is adamant that she did not claim her children this year.

Upon seeing the money, I advised her to leave the money as the Internal Revenue Service may eventually ask for it back. Her new boyfriend then quickly told her to withdraw it anyway. They’ll deal with it later if the IRS asks for it, he said.

My question is: Will this situation hurt my fiancée and me in any way? I fear that the IRS may find out sooner or later about the error and seek the money from us, as her mother may have already gambled away that stimulus money, and make us pay for it even though we are using it as it was intended: for bills and necessities.

Fiancé

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Fiancé,

You are correct. The IRS will eventually ask for that money back, and it will likely do so by deducting the money from a future tax refund. You are also correct that your de facto mother-in-law should not spend the money. I take my hat off to you for raising these two children, and giving them a stable home and the head start in life that they deserve.

Many people in such a situation would write complaining about how they did X, Y and Z, and their in-laws were ungrateful. But you have taken the high road, knowing that these shenanigans are between you two and your fiancée’s mother, and do not involve your girlfriend’s two younger siblings. I am glad that you have not involved them in this somewhat messy situation.

You, of course, have done the right thing. The Moneyist column has dealt with dependents who claimed the stimulus, and parents who are not guardians of their children collecting it. The $1,400 economic stimulus payment, as you are aware, is not a loan. This third stimulus check is an advance tax credit on your 2021 taxes, and calculated based on your 2020 taxes.

If the IRS does not know who is telling the truth here, it will audit both parties. The truth will come to light eventually, and your fiancée’s mother and her boyfriend should be made aware that you are not in a position to help bail them out of this situation. They have knowingly walked into it, and there should be a clear boundary between helping her children and being a facilitator to this malfeasance.

The IRS has extensive guidance on what to do when someone fraudulently claims your dependent. “If you determine the other person was not eligible to claim your dependent, you’ll need to take steps to protect your right to claim the dependent and ensure an accurate filing,” it says. You have everything you need to know in order to take proactive steps here.

I leave that for you to decide.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

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I’m on track to retire at 58. My fiancée is in debt and drives my old car, and I support her family. How do I ensure my son inherits my wealth after I die?

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Dear Quentin,

I have dated my fiancée for just over three years. Within those three years, I have been severed from a job and spent two years unemployed looking for a new job. I have a new job, making roughly 75% of what I previously made, but it is a more than livable salary. My fiancée makes a modest salary in comparison to my own.

Financially, I had spent a lot of years going without in order to pay for my son’s college education and to stockpile savings in order to retire early. According to my financial planner, I am well ahead of my goal to retire at 58 (I’m 51 currently) with an IRA of around $2 million, plus savings and other liquid assets.

Currently, my fiancée is trying to get herself out of debt. She drives my old car and shares no utility bills or mortgage payments, but she does buy groceries, as the household is made up of her, her children and me. By supporting her family, I have very little I can do for my own son.

It has always been tradition in my family to leave an inheritance. I had planned on leaving my only son a rather large inheritance so that he may better himself and his family. My fiancée has children, and my concern is that if I am married (I live in Texas), the savings I have would go to her and subsequently her children, bypassing my son.

Since I am 10 years older than my fiancée, I suspect she may outlive me. How do I protect my assets so that they can be split as part of my wishes?

Nervous Fiancé and Father

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Want to read more? Follow Quentin Fottrell on Twitterand read more of his columns here.

Dear F & F,

Texas is a community-property state, so what you bring into the marriage, you also take out of the marriage. Assets accrued during the marriage, with the exception of inheritance, are deemed marital or community property.

You have several options, including setting up a living trust to allow you to transfer your wealth to your son during your lifetime, and thereby avoiding going through probate, which can be an unpredictable, cumbersome and public process.

You have two choices of trust: revocable or irrevocable. The first can be changed. You could retitle financial accounts in your son’s name. The latter cannot be changed, and also serves to save on estate taxes. It’s typically used to leave assets to children and grandchildren.

Other routes: a prenuptial agreement, a will (obviously) and naming your son as your beneficiary on your life-insurance policy. With the help of an estate planner, you can devise ways to ensure your son is taken care of after you’re gone, and your future wife is not left out.

In the meantime, ensure you keep separate property separate. If you deposit an inheritance in a joint bank account, for instance, it becomes marital property. If your fiancée contributes to the renovation of a home in your name, it again becomes community property.

Speak to your fiancée about your concerns and goals. It’s important to be transparent and ensure that you and she are on the same page, and share the same financial expectations. You may also want to wait until your wife pays her debts before marrying.

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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