We are seeing joint economic impact payments (sent via ACH) being rejected because one spouse died after December 31, 2019. The check is for $2,400, and the surviving spouse still has an account at our bank and has not yet updated the ownership. Should we post this ACH payment?

We recommend following your existing policy for ACH tax refund payments made to deceased accountholders (as explained below, the economic stimulus payments are treated as tax refunds). For a joint account for which one accountholder died in 2020, we do not believe that the economic stimulus payment should be returned.

The economic impact payments authorized under the CARES Act are structured as rebates of refundable tax credits for tax year 2020 in amounts up to $1,200 for individuals and $2,400 for married couples, plus $500 for each qualifying child. The ACH payments of the rebates are “indistinguishable from any other tax refund credit,” according to Nacha. Consequently, we believe that your accountholder would be entitled to the full $2,400 for 2020, since their spouse did not die until after December 31, 2019.

Additionally, the Treasury Department’s Guide to Federal ACH Payments (the Green Book) provides that it is a bank’s responsibility to “post the Direct Deposit payment to the account indicated on the ACH record” and does not require you to return tax refund payments made to an account for which the accountholder has died.

For resources related to our guidance, please see:

IRS, Economic impact payments: What you need to know (“Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples and up to $500 for each qualifying child.”)

CARES Act, Section 2201, Recovery Rebates for Individuals (“(a) IN GENERAL. In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2020 an amount equal to the sum of (1) $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus (2) an amount equal to the product of $500 multiplied by the number of qualifying children (within the meaning of section 24(c)) of the taxpayer.
(b) TREATMENT OF CREDIT. The credit allowed by subsection (a) shall be treated as allowed by subpart C of part IV of subchapter A of chapter 1 [Refundable Credits].

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(f)(1) Subject to paragraph (5), each individual who was an eligible individual for such individual’s first taxable year beginning in 2019 shall be treated as having made a payment against the tax imposed by chapter 1 for such taxable year in an amount equal to the advance refund amount for such taxable year.”)

U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 1 (March 2020), page 12 (“IRS Tax Refunds . . . The financial institution’s responsibility is to post the Direct Deposit payment to the account indicated on the ACH record. If the funds are posted to a valid account that turns out to be incorrect, the financial institution is not liable to the government for the return of the funds. If the taxpayer or the taxpayer’s agent gave the incorrect account information, neither Fiscal Service nor the IRS will assist the taxpayer with recovering the funds. The taxpayer is free to pursue civil action. If, however, the IRS made the error, it will make the taxpayer whole.”)

U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 2 (March 2020), page 5 (“It is important to note that a financial institution is not required to manually verify that the name on the ACH entry matches the name on the account at the time the payment is posted. An RDFI is only liable for posting the payment to the account in the ACH credit entry.”)

Nacha Pandemic-Related FAQs (April 16, 2020) (“Economic impact payments will be formatted identically to any other IRS ACH tax refund credit entry (including an individual’s Social Security Number). . . If an RDFI becomes aware that a payment was misdirected to a wrong account, either by an accountholder, a government agency, or through its own research, it is required to notify the sending agency. Notification could be through proper return of the ACH entry or by contacting the agency. If it deems possible, the RDFI may make an internal correction and provide the agency with an NOC; however, the RDFI is liable for the corrected information.”)

Nacha Pandemic-Related FAQs (April 16, 2020) (“As these payments will be indistinguishable from any other IRS tax refund credit, RDFIs that are participants in the IRS Refund Return Opt-In Program may utilize the opt-in program rules to return potentially erroneous or questionable payments for up to 60 calendar days using Return Reason Code R17.”)

Nacha Pandemic-Related FAQs (April 16, 2020) (“How should the RDFI handle an Economic Impact Payment to the account of a deceased customer? While the U.S. Treasury has not publicly addressed this question, it is Nacha’s understanding that the IRS has screened the Economic Impact Payments for eligibility. Since the payments are considered tax refunds, Nacha believes they are not subject to U.S. Treasury reclamations. Nacha believes that RDFIs can rely solely on the account number in posting the entry.”)

Treasury Rules, 31 CFR 240.15(a) (“Handling of checks when an executor or administrator has been appointed.

(1) An executor or administrator of an estate that has been appointed in accordance with applicable State law may indorse checks issued for the following classes of payments the right to which under law does not terminate with the death of the payee: payments for the redemption of currencies or for principal and/or interest on U.S. securities; payments for tax refunds; and payments for goods and services. . . .

(2) An executor or administrator of an estate may not indorse a check issued for any class of payment other than one specified in paragraph (a)(1) of this section. Other checks, such as recurring benefit payments and annuity payments, may not be negotiated after the death of the payee. Such checks must be returned to the certifying agency for determination as to whether, under applicable law, payment is due and to whom it may be made.”)

Treasury Rules, 31 CFR 240.15(b) (“Handling of checks when an executor or administrator has not been appointed. If an executor or administrator has not been appointed, all checks issued to a deceased payee must be returned to the certifying agency for determination as to whether, under applicable law, payment is due and to whom it may be made.”)