How Changing 2019 Overpayment from Carryforward to a Refund Could Benefit Individuals

In the wake of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), much discussion has centered about helping businesses secure funding. As a result, business relief was provided through initiatives such as Payroll Protection Program (PPP) loans, Economic Injury Disaster Loans (EIDL), Employee Retention Credits and an increase in the allowable business interest deduction limit.

Tax relief for businesses helps those businesses and by extension, the economy at large. Yet, what tax relief has been made available to individuals during the coronavirus (COVID-19) pandemic?

Most significant in this regard is the Economic Impact Payment, which relies on adjusted gross income thresholds. Individuals who lost their jobs or had work hours reduced could apply for unemployment benefits or Pandemic Unemployment Assistance. With millions of individuals now collecting unemployment and facing uncertain cash flow prospects in the future, this alone may not be sufficient. Thankfully, there may be another way for individuals to access cash.

Specifically, taxpayers who already have filed 2019 individual income tax returns that reflect an overpayment applied to 2020 may instead elect (retroactively) to receive this overpayment as a refund. Pursuant to a 1977 Revenue Ruling, the process of doing so is fairly simple. An amended return need not be filed for 2019. Instead, a “Superseded Return” would be filed. When that filing occurs, the individual simply can indicate that the overpayment should be refunded instead of carried forward. The superseded return will then replace the original 2019 return.

Some points relative to this should be considered. Most pressing, the superseded return must be filed before the original due date for an individual’s 2019 return. The original due date for filing 2019 individual income tax returns is July 15, 2020 (which, under the CARES Act, was extended from April 15, 2020). Additionally, superseded returns must be paper filed and mailed to the appropriate IRS processing center. The mailing address can be found within the Form 1040 filing instructions. Note that, as with most returns that are paper filed, processing could be delayed. That said, providing banking information on the return will speed up the payment by four to six weeks.

If you have any questions about this please contact your ALL tax advisor or call us at 617-738-5200.