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Understand the Recovery Rebate Credit

This article was written by in Taxes. 49 comments.


According to the Internal Revenue Service, 15% of 2008 income tax returns that have been filed already have errors involving the recovery rebate credit. Here is what the government wants you to know:

Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line. To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.

The “recovery rebate credit” is what you will receive as part of your tax refund or a reduction to the amount you owe if you didn’t qualify for or receive the full economic stimulus payment in 2008.

I have explained in detail how to claim the correct amount for the recovery rebate credit and how to understand what is really going on with the numbers.

TurboTax is Easy, Free Edition, Fast Refund

There is still much confusion, particularly among people who file their taxes online or with software that offers a “running total” of the refund or amount due. After taxpayers correctly enter the amount they received for their stimulus payment on the line marked “recovery rebate credit,” they see their refunds drop by the amount they enter.

The immediate reaction is to believe that taxpayers are paying back the money they received for the stimulus to the government. That is not true. The reduction is due to the fact that before you entered your recovery rebate credit, it was $0, so the software believed the government still owed you the stimulus rebate. You can only receive it once, so if you received a credit in 2008, you won’t receive it now.

But that does not mean you’re paying it back. Without the economic stimulus and recovery rebate credit (again, they’re the same thing), your final tax bill or refund would be the same as it is now, if you complete your tax forms accurately.

In the IRS’s words:

Q. Will the payment I received in 2008 reduce my 2008 refund or increase the amount I owe for 2008?

A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 tax return. The combined amount you received in the form of an economic stimulus payment plus any additional amount you receive, if any, in the form of a recovery rebate credit is independent of the normal tax you would have paid.

Here are some more points from the IRS.

Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.

Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.

One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.

Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.

Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.

Want to get your specific questions answered? Call the IRS Recovery Rebate Credit hotline toll-free at 1-866-234-2942.

Updated March 21, 2011 and originally published February 2, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 49 comments… read them below or add one }

avatar thomas

Great info.

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avatar Yana

That certainly seems confusing, but what really has me scratching my head is your last line. If you request a refund via direct deposit, and submit an erroneous tax form, you get the right or the wrong refund? And if wrong, what happens next? Nothing? LOL Makes me think they really want your bank info, but I am the paranoid type when they *are* out to get me ;) I generally pay taxes and don’t get refunds, but I really don’t think I’d sign up for direct deposit if I did.

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avatar Luke Landes ♦127,505 (Platinum)

Yana: The way I understand it — and this actually happened to me a few years ago — they’ll credit your account the correct amount and send you a notice in the mail explaining how they came up with the correct refund.

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avatar Yana

That would be the right way to do it. And of benefit to the person filing.

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avatar Timberland

Flexo,

I know everybody’s confused including me. Here’s my question/situation.

I work for the same company, made the same amount of money and nothing has changed.

My refund last year was 1500.00 that i got in Feb, then in June i got the 600.00 stimulus check. which in total is 2100.00

This year my refund is 900.00 to me there taking the 600.00 back because if they were’nt my refund would still be 1500.00 dollars.

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avatar Luke Landes ♦127,505 (Platinum)

Timberland: I do admit it’s very strange, and you’re not the first to mention that your refund this year *seems* to be off of a year-over-year trend by the amount of the stimulus check. But to understand for sure, I’d have to see every line of 2007′s and 2008′s returns. Keep in mind that even though your income doesn’t change, the tax rate tables and other tax laws do.

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avatar York

great post and info for your readers. I have read a couple different articles regarding the confusion of this topic. A lot of people will probably have their taxes held up because of this.

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avatar Timberland

I’ve been using turbo tax since 2003. The first question they ask is did you receive a stimulus check and how much. As soon as you enter the amount and click continue your refund is reduced by that amount. I make $37000.00 a year, and when I do my taxes I dont itemize i do the standard deductions.

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avatar Luke Landes ♦127,505 (Platinum)

Timberland: That makes sense because until you enter the amount you received through the stimulus, Turbo Tax assumes you received nothing, and would therefore qualify for the Recovery Rebate Credit. Once you enter that you’ve received, for example, a $600 stimulus check, you no longer qualify for a $600 recovery rebate, so that amount is deducted from your refund. But the Recovery Rebate Credit is new this year, it’s just another name for the economic stimulus. Just about everyone received their credit as a stimulus payment in 2008, so just about everyone will not qualify for the RRC, and will see their refund about decrease once they enter the amount of their economic stimulus payment.

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avatar Timberland

I guess what I’m getting at is my refund is 1500.00 just like it was last year and then they subtract the 600 to bring it down to 900.

Remember I got 1500 in feb and another 600 in june which equals 2100.

Sorry i dont mean to be a pain but am i missing something lol

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avatar Luke Landes ♦127,505 (Platinum)

Timberland: It’s hard to say without knowing your full information. I do know that even with a consistent income, it’s hard to expect that you’d receive the same refund year after year.

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avatar Timberland

I agree with you 100% My return isn’t exactly the same year after year it differs some but it sure is strange how its the amout that i got in the stimulus check. is what differs this year.

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avatar confused

I entered the wrong amount when turbo tax asked me about the stimulus check I received. This resulted in my refund amount being $900 too high. They said my return was accepted but will the IRS automatically correct this for me and send me the correct (lower) amount? Or will I need to file an amended return?

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avatar Luke Landes ♦127,505 (Platinum)

confused: The IRS should correct it for you when they crosscheck your SSN again their stimulus payment records, you shouldn’t have to file an amended return for this. You could give the IRS a call to double check, though.

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avatar wanzman

Timberland & Flexo –

The reason your refund is exactly 600 less than last year is that the stimulus check represented the elimination of a certain portion of taxes in 2008 – except they paid it to you early in 2007. If your income was the same as last year, your refund is essentially the same as well, except you got 600 over the summer and 900 now…it still adds up. You are not paying it back…you just got a portion of your refund early. That was the whole idea behind the stimulus payment.

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avatar Luke Landes ♦127,505 (Platinum)

Wanzman: That’s not true. The stimulus check last year was not an early payment of your refund, it was an early payment of a *new tax credit* applied to the 2008 tax return (called the Recovery Rebate Credit). The net result should be an additional amount received *over and above* what your tax refunds would have been if there were no Economic Stimulus Payment/Recovery Rebate Credit.

This is explained in the text of the law and by the IRS.

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avatar Luke Landes ♦127,505 (Platinum)

Here is exactly what the IRS says:

Q. Will the payment I received in 2008 reduce my 2008 refund or increase the amount I owe for 2008?

A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 tax return. The combined amount you received in the form of an economic stimulus payment plus any additional amount you receive, if any, in the form of a recovery rebate credit is independent of the normal tax you would have paid.

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avatar shoyu

I only received a $438 rebate check in 2008. I did my income tax return last night with the free H&R Block online software, and the IRS refunded me the rest of the $600 it owed me.

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avatar Juicylee

I filed my taxes using software purchased. Everytime, I submitted it was rejected because of the stimulus recovery rebate, when ‘zero’ was entered, it kicked back. Finally, I entered $600 and it was accepted by the IRS, but reduced my refund by $600. Will I get that back? Or am I out of luck. I did receive my refund minus the $600.

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avatar Dave Hippo

If you got $600 Economic Stimulus Payment in 2008 for filing, let’s say single with only yourself as an exemption, and you file single with yourself as an exemption on your 2008 return, you don’t pay back anything, but the Recovery Rebate Credit on the 2008 return will be zero. Your tax refund is figured as if that credit wasn’t there at all. The Recovery Rebate Credit is only for those who did not get a credit at all or got less of a credit than they would be entitled to based on their 2008 qualifying income/filing status/qualifying children.

Now here’s the real question. Suppose you qualified for an Economic Stimulus Payment in 2008 based on your 2007 income but you didn’t file at all, or filed incorrectly, or filed late and your check didn’t go out. In 2008, you didn’t have enough income to qualify. Can you still take the Recovery Rebate Credit?

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avatar delvalmom08

OK – so now I’m thoroughly confused. I too have Turbo Tax and it asked if I received the rebate in 2008. Naturally I did ($600) and answered “yes”. I then entered the full amount of $600 and it did deduct it from my tax return amount for this year. So what exactly should I do in Turbo Tax then – answer “no”? And if it is deducting the $600 from my tax return and shouldn’t be, what should I do? I had no lifestyle change, etc. that would qualify me to receive additional money re: this rebate. Help!

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avatar Luke Landes ♦127,505 (Platinum)

delval: You should answer with $600, since that is the stimulus payment you received. While that made your refund amount change, that’s only because before you entered $600, TurboTax assumed you didn’t receive the stimulus payment you were entitled to. If your refund *didn’t* decrease after you entered $600, then you would be getting the credit *twice* which would be incorrect. Note that you’re not giving the money back, you’re just not getting it twice.

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avatar delvalmom08

So in essence I received a kind of “advance” on my tax return for this year (for lack of better words)?

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avatar Luke Landes ♦127,505 (Platinum)

Delval: Almost exactly right. It was an advance on a new tax credit (the recovery rebate credit).

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avatar missy

Flexo: My husband and i filed our taxes late last month. We entered our $2216 stimulus amount and the tax professional said we would recieve another $486. Unfortunately she did not tell us how we would recieve it. I have been reading back in the archives of the responses you have given other poeple but i am confused. We recieved our return, I could not see a difference in the return except it was reduced the $486. Could you please tell me why that is? Basically, to me, it seems as though the government took that $486 out of my original return.

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avatar Luke Landes ♦127,505 (Platinum)

Missy: I would check with your tax professional first. If you receceived $2,216 as your economic stimulus payment, it sounds like you didn’t receive a full stimulus for some reason — perhaps some was used to pay an outstanding tax bill or some other lien. If that’s the case, then you should have entered on your form not what you received but the total amount of what you were due, before the stimulus was reduced for outstanding bills. The IRS probably did that for you. But there are so many details, and I couldn’t say for sure without knowing much much more about your situation. Again, check with your professional.

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avatar missy

that’s just it i have no outstanding bills or tax liens. We file straight forward every year. No added extras or anything. We took the standard deduction, even. I have called my tax professional several times and she is as confused as i am. She doesn’t understand why they took that money from us. So, i was hoping you would be able to help

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avatar missy

i even calculated my economic stimulus last year in June and i got what it said 2216.20. And on line 70 of my tax return (Recovery rebate credit) it shows $486. Now i am really confused!!!!!

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avatar Luke Landes ♦127,505 (Platinum)

Missy: Another possibility is that your stimulus payment was affected by the upper income phase-out/limit. If you are below the limit this year, you should receive the difference, but if you are above the limit this year, you wouldn’t receive any additional credit. Hope that helps; again, without your full data, I can only be so much help. And I’m not a tax professional.

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avatar delvalmom08

So then instead of $2200, I will now get $1600 back…..for money I never asked for or wanted in the first place. Unfair. Thank you for answering my questions. I really appreciate your help.

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avatar Yana

@delvalmom08 – If you got $600 and now will get $1600, that equals $2200. I think your example makes it very easy to understand.

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avatar missy

I thatnk you very much. I called the main branch of my tax office. It was explained to me that i may have been shorted that amount. The IRS has to take a closer look at my taxes and find out why we didn’t get that money. If it is owed then they have to send it to me. Again, thank you for your help.

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avatar Luke Landes ♦127,505 (Platinum)

Missy: Sounds good — I hope it’s resoved quickly and that you are able to receive more money… more money in your pocket is always good!

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avatar Josh

Last year I only received $300 for my stimulus payment. I put this amount on when TurboTax asked. I don’t know if I was supposed to receive the other $300 this time around. If so, then I’ve been shafted because I only received my standard refund of $211. I’m so confused by all of this.

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avatar Jon Daley

Hi all. I also have been a little confused by the whole recovery rebate.

As I understand it, almost everyone should receive nothing this year for back-payment of the economic stimulus credit. And whether you got it last year or will get it this year, it doesn’t affect your “regular” taxes.

In my case, we had a child in 2008, so I expected to receive an extra $300 for the RRC. But, as I was adding in business expenses/deduction, I noticed that my “regular” refund stopped going down. Looking into it further, I discovered that the RRC was going down each time I added a deduction.

The reason for this is that my taxes (line 56 of the 1040) is zero (but, never fear, the IRS is getting plenty of money out of me in the way of self-employment taxes). If you follow the instructions for calculating the RRC, you’ll notice it is limited by the child tax credit (line 52) (and note that the line 52 is limited by your overall tax, and further credits are taken on line 66)

So, I ended up with a RRC of $28, instead of $300…

Now, I’m just trying to find a (legal) way to move deductions from 2008 to 2009 in order to save the “missing” $272.

It’s pretty painful to watch deductions not have an impact on the taxes I pay.

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avatar Levi

what if my tax prepairer entered that i did receive a stimulus when i really did not , and i do qualify for the rebate but when i had my taxes done they told me that they had to put that i did recive a stimulus or the return would be delayed and that the irs will correct the error and send me a seperate check is this true ? if not what should i do?

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avatar Jon Daley

Apparently, there were rumors early on about returns being delayed forever, but I guess unless you really needed a smaller amount of money early, rather than the full amount later, I don’t know why you would put the wrong information in (and particularly since you have to sign to say that all information is correct as best as you know, I don’t know why people would purposely put incorrect information).

However, whenever (as far as I know) I have made mistakes in calculating things, either in my favor or in the IRS’s favor, they have caught the mistakes, and corrected them.

If you misreport income or expenses/deductions, they have a harder time finding that out, so can’t catch all of those mistakes.

I expect that all of the recovery rebate stuff will be caught since so many people have been making mistakes. If I had used your tax preparer, I’d expect them to pay what you should have gotten from the IRS, since that is why you are paying them – to do your taxes correctly, so they shouldn’t make “mistakes” like the one they did. But, I’d expect you to receive the correct amount from the IRS in this case anyway.

******************************

As a followup to my own question, I’ve asked around, and there isn’t any way to move deductions from one year to the other once they’ve occurred – if I had realized how the form worked prior to January, I could have easily moved some donations or expenses to the next year, and saved a couple hundred dollars… One accountant did tell me that there is some trick with sort of ending your year early, and moving all expenses after November, etc. particularly in the case if you have one big chunk expense, but that sounds kind of shady, and I don’t want to be involved in that.

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avatar martha

I am really confused about this RRC..see I filled head of house hold single parent of 1. I got stimulus package of 600 + 300 for my son. I make around $28000.00 for the year. all I want to know If I am getting a recovery rebate check?

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avatar catherine

I didn’t receive a stimulus check for 2008 because I had to file an amended tax return due to the incorrect number of exemptions claimed (claimed 1 instead of 3). Why am I not getting 1500 (married couple and 1 dependent) for the recovery rebate credit? It is only giving us a maximum of 1300? And why does the child tax credit effect the rrc?

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avatar Jon Daley

martha: that sounds right to me (ie. no RRC for you). I believe $600 for each taxpayer plus $300 for each dependent is the maximum you will receive, some limits make the recovery credit smaller than that, but not more.

catherine: yeah, the way I have figured it out says that some people got more than they “should” have in the original stimulus check, because the IRS doesn’t know how much tax you would pay this year, so sent the full amount. But, those people applying for the RRC are limited by the actual amount of taxes (and a couple of the credits), causing you to generously donate that money to the American people.

As a friend of mine said last night, “The American people thank you”.

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avatar Jon Daley

I just noticed a line in the FAQ about the RRC that says the economic stimulus checks were based on your 2007 filing status and dependents (which I knew), and also on the amount of tax/credits (which I hadn’t known). So, there is another category of people who will get an RRC, where your taxes in 2007 were so low as to limit the stimulus payment check, but are paying more taxes in 2008, so they should be able to “recover” some of that leftover from last year.

The long answer to all of the questions regarding the RRC is to fill out the RRC calculation on page 62 of the 1040 instructions. Or put “RRC” on line 70 of the 1040, and let the IRS figure it out for you.

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avatar Charlie

I know I am a couple of weeks behind everybody else, but thanks for all of the interesting stuff. After reading all of the comments I think I have it figured out correctly. My wife & I only received $600 last year, but using the worksheet I ended up with the other $600 (Married filing jointly) Thanks people!

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avatar Lolita

I used Turbo Tax and when I marked “no” for stimulus check my payment due amount was $684.00. When I answered “yes” to stimulus check and put $1200.00 (without changing any other information on my tax return) my payment due amount increased to $1884.00… in other words I have to pay my entire stimulus check back…

The way I see it is that I was given an advanced credit that I wasn’t eligible for and now I have to pay it back when money are gone…

Per IRS stimulus check shouldn’t affect my tax refund, but it does!!!

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avatar Luke Landes ♦127,505 (Platinum)

No, it doesn’t. You’re just not receiving the credit TWICE. Why would you mark “no” for receiving a stimulus check? If you put wrong information into TurboTax, you won’t get the right answer. You are absolutely *not* paying the credit back regardless of what it looks like to you.

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avatar billtmore

I tried taxact to do my daughters tax and it came up with a 300.00 rebate recovery (as she was declared on her mothers last year but not this year) But when I do the taxes by hand she only gets 264. I cannot figure out how taxact came up with a 300 dollar figure (unless that is a minimum). Is there a 300 minimum if she did not receive any stimulus check last year?
thanks for any thoughts!!!

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avatar Jon Daley

Did you try my calculator? It should line up with your hand calculations, and if it doesn’t, compare your numbers with the “fields” that mine shows at the bottom, and see what is different.

There isn’t a minimum as I originally had a $28 RRC until I deducted some more business expenses, which shrunk it to $0.

Hrm – one of my comments on this site was deleted. I had a link to a calculator I wrote which made it much easier for me to understand how the RRC works.

You can search on google for the calculator (and I see that now there are lots of calculators available – so you can try the calculations on those too).

When I wrote mine (and posted it here) the IRS hadn’t published their calculator, so I was hoping to help all you folks out.

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avatar Mike R

I checked the IRS calculator for the correct amount of stimulus received (600), and entered the amount into TurboTax which accepted it.

Fast forward 3 months and I get a bill in the mail saying “The IRS calculated the amount of Recovery Rebate Credit incorrectly” and I now owe 603 dollars.

What exactly happened? I followed the IRS and Turbo Tax directions to the T and then get sent a bill for exactly the amount of my stimulus check?

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avatar Jon Daley

Hi Luke,

I got a spam today using the email address that I gave you on this comment form. No one else has this address, so I know that your database was either hacked, or you gave/sold my address to a spammer. Presumably it is the former, but you’ll probably want to change your password on this site, as someone else has obtained access to your database.

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avatar Luke Landes ♦127,505 (Platinum)

Thanks, Jon — I’ll look into that. I apologize for the problem. You can be certain I didn’t give any email addresses out.

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