Tax Prep Dispatch: Alternative Service Delivery Tips!

Editor's Note: This edition of the Tax Prep Dispatch was written by Brad Martin, VITA Program Coordinator at United Way of Southwest Alabama and member of the Taxpayer Opportunity Network Steering Committee.

Please join us for our COVID-19 listening session webinar on April 28 from 1 - 2:30 P.M. ET. You do not want to miss this opportunity to hear from your peers about their creative models and solutions during this pandemic.

In a previous edition of the Dispatch, we told you about the basic premises behind the Economic Impact Payments (EIP), commonly referred to as Economic Stimulus Payments. One of the things we told you is that this situation is fluid and may change. As of now, the information provided is current, but you should check the resources at the end of this article for updates.

Let's Review

Taxpayers who have social security numbers and income below certain limits are eligible to receive an EIP of $1,200 per taxpayer; $2,400 if married filing jointly; and $500 per qualifying child under age seventeen.

Social Security recipients who are retired or receiving Social Security Disability Income (SSDI) or survivor's benefits and are not required to file a tax return do not need to do anything to receive their EIP. Information from these taxpayers' forms SSA-1099 will be used, and their benefits will arrive in the same way as their monthly benefit payments.

But what about Non-Filers who are not receiving such benefits? This could include people whose only income comes from Veterans Affairs (VA) benefits or Supplemental Security Income (SSI). But it could also include people who receive income from a job, interest, dividends, unemployment compensation, or investments. When this income falls below the amount requiring the filing of a tax return, no tax was withheld, and no special circumstances make filing necessary or even beneficial, we generally encourage these people not to file a tax return.

But now there's the EIP, and suddenly these Non-Filers become filers who present new challenges to your program, and at a time when your program is functioning using alternative methodologies.

In this article, we'll discuss who should (and who shouldn't) file what is being called a "simple" return, which we'll call a "Non-Filer's return" to avoid confusion.

We'll also discuss different methods you can use to prepare a simple return or help your clients prepare and file their own simple returns.

Do I Need to File a Non-Filer's Return?

Considering that a Non-Filer's return is supposed to be "simple", there are several things you have to consider before deciding if filing one is in the best interest of your clients. Answer the following questions:

1. Did the person already file a tax return for 2018 or 2019?

If yes, stop. The person is already in the pipeline to receive an EIP if they are eligible.
If no, continue to Question 2.

2. Is the person eligible to receive an EIP? The person must not be the dependent of another taxpayer, must have a Social Security Number that allows him or her to work in the U.S., and must be a U.S. resident. The person must also have an income below certain limits to claim an EIP, but in this case, we're talking about Non-Filers, which is an even lower income level.

If yes, proceed to Question 3.
If no, stop. The taxpayer is not eligible for an EIP, so no further action is needed.

Note: Just to emphasize, dependents cannot claim an EIP.

3. Does the person have to file a full tax return, or could they gain any benefits from filing a full tax return? Do they have income above the filing threshold for their filing status? Did they have federal income tax withheld from any sources? Are they eligible to claim Earned Income or other refundable credits? Do they owe other taxes such as self-employment taxes? (See Publication 4012 , Tab A, for the complete list of questions to determine Who Must File and Who Should File a tax return.)

If yes, stop. Because the person should or must file a full tax return, you should not file a Non-Filer's return.
If no, proceed to Question 4.

4. Did the person receive Social Security Benefits (retirement, disability, or survivor's benefits) or Railroad Retirement Tier 1 Benefits in 2019?

If yes, proceed to Question 4A.
If no, proceed to Question 5.

4A. Does the taxpayer have qualifying children under age seventeen?

If yes, you should file a Non-Filer's return as a means of including children under age seventeen for purposes of claiming $500 in additional EIP per child.
If no, stop. Social Security benefit recipients and Railroad Retirement Tier 1 Benefits who do not have a qualifying child and do not have a filing requirement will receive their full EIP in the same way they receive their benefit payments. No further action is needed.

5. Does the taxpayer only receive Veterans Affairs (VA) Benefits?

If yes, go ahead and file a Non-Filer's return.
If no, proceed to Question 6.

6. Is the taxpayer receiving Supplemental Security Income (SSI) benefits?

If yes, proceed to Question 6A.
If no, you should file a Non-Filer's return. See below for ways to accomplish this.

6A. Does the taxpayer have qualifying children under age seventeen?

If yes, you should file a Non-Filer's return as a means of including children under age seventeen for purposes of claiming $500 in additional EIP per child.
If no, the guidance is somewhat fluid. Treasury and the Social Security Administration are working towards a solution which would allow SSI recipients to receive their payments automatically, in much the same way that other Social Security Benefit recipients can. But this has not been implemented, so until further notice, you should probably go ahead and file a Non-Filer's return.

Additional Questions

My taxpayer, Drake, claimed his eighteen-year-old son on his tax return. Drake's son, Walter, lived with Drake all year. Walter is a high school senior who made $4,500 in 2019. Should I amend Drake's return to remove Walter as Drake's dependent so Walter can claim an EIP?

No, Drake's return was correctly prepared. Walter is Drake's dependent; Walter lived with Drake and did not provide more than half of his own support. Amending Drake's return does not change the fact that Walter could still be claimed as Drake's dependent. Therefore, Walter is ineligible to claim himself, and thus cannot claim an EIP. In addition, removing Walter from Drake's return could have consequences for Drake beyond the EIP. For instance, Drake would lose the Head of Household filing status and the $500 Credit for Other Dependents, which could effectively erase any gain realized from removing Walter from the return even if it were allowable to do so.

If a taxpayer needs to file, can I go ahead and file a simple return now to claim the EIP, and then go back and file a full return later?

Don't do this. A non-filer's return is not an extension. If you electronically file a non-filer's return, it will be the electronically accepted tax return for that taxpayer for the current year. If you want to file a full return for the taxpayer later, you'll have to file a paper return, which would be either a superseding or amended return. Remember we are talking about a Non-Filer's return.

If I've already filed a taxpayer's return, but they didn't provide direct deposit information at the time, can I use a non-filer's return to provide or update that information?

No. You cannot file a second electronic return. The IRS will soon release a tool for updating banking information for filers who have already submitted a current year return. Taxpayers who need to update their banking information should visit this page and click on the "Get My Payment" button when it becomes available, which is projected to be April 17.

What are the Options for Preparing and Submitting Non-Filer Returns?

There are several ways you can accomplish this goal, depending on whether your site is preparing the returns or whether you are guiding a client who is self-filing.

1. Prepare the return in TaxSlayer.

If you're a TaxSlayer site, the software makes these returns easy to prepare, once you know how. Don't get creative and try to deviate from these instructions, though, or you could end up with less than desirable results. The process is as follows:

Begin a new return. For this purpose only, pretend that you only have two filing status choices. If you are filing a Non-Filer's return for a married couple, select Married Filing Jointly. For all other filers, you should choose Single. Even for Head of Household filers or married filers using separate returns, you should choose Single for this purpose only. The quickest way for the IRS to implement this process was to use the Single filing status for any Non-Filer who needs to claim a $1,200 EIP (plus any $500 payments for children under seventeen).
Enter the taxpayer's Personal Information including address and telephone number. Choose "None" for the Resident State to suppress any state returns.
Enter any dependents, if any, who are qualifying children under the age of seventeen. Remember that you are doing a Non-Filer's return only, so there is no advantage to adding the taxpayer's dependent mother or seventeen year old son.
In the Income section of the return, add $1 of ordinary Interest--Form 1099-INT Box 1. Do not include any other income.
Skip to the Health Insurance section, and answer "No" to the question, "Did you purchase health insurance via HealthCare.gov or a State Marketplace?"
Proceed to the E-file section and complete. Be sure to select E-file Direct Deposit as the federal return type, and include the taxpayer's bank information.

Note: TaxSlayer's end user products will also perform the same way, including TaxSlayer FSA and TaxSlayer available for federal returns on the IRS Free File website.

2. Prepare returns using another product.

If you're not a TaxSlayer site, or if your taxpayers wish to use another product, you, or they, should check to make sure the software has provisions for accommodating this kind of return. Taxpayer Opportunity Network members have mentioned other products that have implemented similar provisions, but your experiences may vary.

3. Use the "Non-Filers: Enter Your Payment Info Here" page at irs.gov.

This page explains the requirements for claiming an EIP, and then takes the user to a page that walks Non-Filers through the process of submitting their information to the IRS. Only recommend this option to people who do not have to file and will not file a traditional tax return for 2019. Remember that this is separate from the "Get My Payment" page for providing updated banking information for existing filers.

Existing Returns and the EIP

It's important to remember that the tax law hasn't changed. Trying to change the facts and circumstances of a taxpayer's situation to help them with the Economic Impact Payments is no different from changing the facts and circumstances to help a taxpayer with the Earned Income Credit. Changes to existing returns should only be made if, in fact, they are lawful and result in a more complete and accurate tax return than the one that was originally filed.

Volunteers want to do everything we can to help taxpayers, especially when times are so tough and an Economic Impact Payment could be so helpful. But remember that the taxpayer will have to answer for whatever changes you make, and that added inconvenience doesn't help a taxpayer who may already be on shaky ground with either their finances or the IRS. So make sure that helping is not hurting, and that any change you make to an existing return is accurate.

Final Thoughts

We should always strive to get things right for our taxpayers, but during this uncertain time we need to be doubly sure we have our facts straight, especially when the guidance keeps changing. If you think something might have changed since the last time you checked, it's always a good idea to visit the following websites:

The IRS page on Economic Impact Payments

The Social Security Administration's page on COVID-19, including information on Economic Impact Payments:

In any case, it's important to determine whether someone is a Non-Filer for 2019, and then if so, to figure out the best way for that Non-Filer's "simple" return to get submitted. Processes have been put in place to make that happen, but it's important to understand how those processes work. In the end, helping the taxpayer is the goal as always, and it's even more important during such uncertain and stressful times as these. But you have the tools and you know how to use them. You can do this!