Taxes Are Going To Look Different For A Lot Of People This Year
The COVID-19 stimulus checks Americans received over the last couple of months were unprecedented in the country’s history, so it’s not surprising that they confused some recipients. Even now, when most eligible people have already received their checks, there are still some misconceptions floating around.
One of the most common is that you’ll have to pay back your stimulus check funds next tax season. According to a recent TD Ameritrade survey, approximately 32% of Americans believe this — but it’s not true. That said, your tax bill could look different this year for other reasons. It’s important to understand why so you can start preparing now.
What If I Wait Until The April 15 Deadline To File My Taxes
April 15 is the due date for all 2020 tax returns, but filing your taxes sooner will not only potentially speed up delivery for any tax refund you might collect, it will also position you to get any missing stimulus money weeks or even months faster. We made a handy comparison chart here that looks at the timing.
What If My Bank Account Information Changed How Will I Get My Second Stimulus Check
Unfortunately, if your second stimulus check is sent to an account that is closed or no longer active, the IRS will not reissue the payment to you by mail. Instead, if you are eligible to get a payment, you can claim the stimulus check on your 2020 tax return as the Recovery Rebate Credit or use GetCTC.org if you dont have a filing requirement.
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State And City Stimulus
Some states have also conducted stimulus payments, with many using funds from the Rescue Act.
Some states include California and Maine.
Under Californias Golden State Stimulus II program, it is estimated that a total of nine million Californians will be getting checks worth up to $1,100 before the end of the year.
The latest set of payments, which started going out on Monday, includes 794,000 paper checks worth more than $568million, the states public affairs office told The Sun.
Eligible Maine residents will continue to receive $285 stimulus payments until the years end.
Another city in California, Santa Ana, has started sending out $300 payments loaded on prepaid Visa debit cards.
“So far about 2,700 have been distributed and we plan to give out up to the full 20,000 cards either in person or notifying qualified residents by mail to pick them up,” a Santa Ana official told The Sun.
According to a statement by the city, those with poverty rates above the Santa Ana median of 42% will qualify for the support.
Also, thousands of St Louis, Missouri residents will be able to apply for $500 stimulus payments this weekend.
Who’s Getting A Stimulus Check That’s More Than The Credit Amount
The amount of your stimulus check is based on your filing status, your adjusted gross income , and the number of children you have who qualify for the child tax credit . If you filed a 2018 or 2019 tax return, the IRS will get this information from one of those returns . However, you could have a change in circumstances this year that shrinks the recovery rebate credit allowed for 2020. This could mean that the stimulus check you receive this year is larger than the authorized tax credit on your 2020 return. Here are a few examples:
Change in Filing Status. Harold and Maude got divorced in 2020. They have a combined 2020 AGI of $160,000 , which is the same total AGI they had in 2019. Since they have no kids and filed a 2019 joint return, they received a $1,900 stimulus check. However, based on separate 2020 returns , Maude qualifies for a $1,200 recovery rebate credit, but Josh doesn’t qualify for a credit at all because his 2020 AGI is too high. Harold and Maude will not have to pay back the additional $700.
Increased Income. Nicholas got a promotion and a big raise in 2020. As a result, his AGI jumped from $80,000 in 2019 to $95,000 in 2020. He is single with no children. Based on his 2019 return, Nicholas received a $950 stimulus check. However, based on his 2020 AGI, he will only qualify for a $200 recovery rebate on his 2020 tax return. Nicholas will not have to pay back the $750 difference.
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Treasury And Irs Begin Delivering Second Round Of Economic Impact Payments To Millions Of Americans
See IRS Statement Update on Economic Impact Payments for additional information.
IR-2020-280, December 29, 2020
WASHINGTON Today, the Internal Revenue Service and the Treasury Department will begin delivering a second round of Economic Impact Payments as part of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 to millions of Americans who received the first round of payments earlier this year.
The initial direct deposit payments may begin arriving as early as tonight for some and will continue into next week. Paper checks will begin to be mailed tomorrow, Wednesday, December 30.
The IRS emphasizes that there is no action required by eligible individuals to receive this second payment. Some Americans may see the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of January 4, 2021. The IRS reminds taxpayers that the payments are automatic, and they should not contact their financial institutions or the IRS with payment timing questions.
As with the first round of payments under the CARES Act, most recipients will receive these payments by direct deposit. For Social Security and other beneficiaries who received the first round of payments via Direct Express, they will receive this second payment the same way.
Myth : It Will Take Months To Receive My Check
If the IRS has your direct deposit banking information, then you should receive your payment in the next few weeks, according to the agency. In fact, the U.S. Treasury Department announced Monday that tens of millions of Americans should receive their deposits by Wednesday, April 15, and the department “expects a large majority of eligible Americans will receive Economic Impact Payments within the next two weeks.”
It is those who still need to file a return and those who get their tax refund via a paper check who will potentially wait months to receive their stimulus check, according to the IRS.
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You Don’t Have To Pay Back Your Stimulus Check Because It’s A Refundable Tax Credit
Your stimulus payment is technically a refundable tax credit, which reduces your 2020 tax bill on a dollar-for-dollar basis. It’s like having store credit at your favorite clothing shop: When you apply it to your total bill, it reduces what you owe. In this case, even if you have no tax liability, the government is “refunding” your credit back to you as a cash payment.
You usually can’t claim a tax credit until you file your taxes, since you don’t know what you owe until the year is over. Because of the severity of this national crisis, the government is giving qualifying taxpayers their credit early in the form of a cash payment. It’s an advance of a refundable tax credit not an advance of your tax refund itself. It will not lower your tax refund this year or next year.
Even though the credit is technically offsetting your 2020 tax liability, the payments for most people are calculated based on the adjusted gross income reported on their 2019 tax return, or 2018 if they haven’t filed yet, because that’s the most readily available income data.
What all this means is that you could get more than what you qualify for based on your 2020 income and the government isn’t going to come after you to settle the score. For example, if your 2020 AGI is too high $99,000 for individuals and $198,000 for married couples who file jointly but your 2018 or 2019 income is within the limits, you’ll receive a payment.
- Read more on managing your money in this tumultuous time:
What If I Wait Until The April 15 Tax Due Date Or File For An Extension
April 15 is the due date for all 2020 tax returns, but filing your taxes sooner will not only potentially speed up delivery of any tax refund you might collect but also position you to get any missing stimulus money weeks or even months faster. We made a handy comparison chart here that looks at the timing.
Filing for a tax extension won’t postpone your having to pay taxes you may owe. Those will still be due by April 15 otherwise, you accrue interest on the amount, which you’ll eventually have to pay on top of your income taxes. And you of course are delaying receiving your stimulus payment.
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Is The Second Stimulus Check Taxable
No. Like the first stimulus check, which was distributed as part of the CARES Act, a $2.2tn coronavirus relief bill passed in March, the second check will not be taxed.
Heres how the IRS explained it in theEconomic Impact Payment Information Center it created when it started sending out the first round of checks: “The Payment is not includible in your gross income. Therefore, you will not include the Payment in your taxable income on your Federal income tax return or pay income tax on your Payment.
“It will not reduce your refund or increase the amount you owe when you file your 2020 Federal income tax return.”
The IRS adds: “A Payment also will not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.”
The Irs Did Little To Get Money Back During The Great Recession
The IRS decision to ask for payments to be returned has been met with confusion. As Money reported in April, tens of thousands of similar relief checks were paid to dead people during the Great Recession, and back then, the IRS did little to get that money back.
Furthermore, tax and legal experts who have weighed in on the subject in recent weeks have said the money would likely not need to be returned. Nina Olson, the former head of internal IRS watchdog Taxpayer Advocate Service, previously told Marketwatch, The CARES Act stimulus bill contained no clawback provisions for stimulus checks sent to a dead person, meaning the agency cant retrieve the money after its been handed out. Congress didnt write around that this year.
The above guidelines are still unclear in many respects. For example, do people who were in jail when the CARES Act passed but have since been released qualify? And what about those who recently died because of COVID-19? Does that money still have to be sent back?
At this time, the answers are unclear.
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More Third Stimulus Payment Money For Some In 2022
Parents who added a child in 2021 could be getting up to $1,400 after they file their 2021 taxes this coming spring thanks to the American Rescue Plan. The money won’t come as a direct check but will be part of the overall tax return.
The 2021 Economic Impact Payment — colloquially known as the third stimulus check — was actually an advance on what is called the 2021 Recovery Rebate Credit. What that means is that the $1,400 stimulus check most individual Americans received in 2021 is, in fact, money they would have gotten after filing their taxes in the spring of 2022 as a Recovery Rebate Credit.
In other words, millions of Americans already got part of their tax refund 12 months early.
“The bottom line is that’s money that’s going out almost immediately to millions of people as a tax credit in advance of putting it on a tax return in the next year,” said Raphael Tulino, IRS spokesman.
However, the IRS was going off of 2019 or 2020 tax returns for its information on the third EIP. It was using that information to determine if taxpayers would get stimulus money for their dependents. If eligible parents had a child born into their family in 2021, they can request the Recovery Rebate Credit on their taxes to get the payment for that child.
It gets more complicated with adoption because all the paperwork and processes to finalize the adoption must be completed first.
This does not pertain to the first or second stimulus payments that were paid in 2020.
Will There Be A Second Stimulus Check
Yes. Both the House of Representatives and the Senate approved the legislation and sent it to the president, who signed it into law at the end of December.
The $900 billion relief package authorizes $600 stimulus checks for adults under certain income limits, plus $600 for each child. Couples who file taxes jointly can get up to $1,200.
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Who Qualifies For The Second Stimulus Check
The IRS has set AGI limits to determine taxpayer eligibility. The ranges for the second stimulus check are broken down as follows:
- Individuals with AGI of $75,000 or less qualify to get the full $600 second stimulus check. Individuals making more than $75,000 and up to $87,000 receive a reduced amount.
- Heads of household with AGI of $112,500 or less qualify for the full $600, and those making over $112,500 and up to $124,500 get a reduced amount.
Note that the second stimulus checks also provide an additional $600 payment for every qualifying dependent under the age of 17. So if you filed your taxes as a married couple with three children, you could get up to $3,000.
Currently, theres no limit on the number of dependents that you can claim as long as they are within the age requirement and you claimed them on your tax return. But keep in mind that if you claimed your child as a dependent and they are over age 17, you are not eligible to receive $600 extra on your stimulus check. Your child does not qualify for a stimulus check of their own either.
The table below breaks down payments by AGI level for single and joint filers:
| Second Stimulus Checks for Single and Joint Filers |
| Single AGI |
What If I Owe Child Support Payments Back Taxes Money To Creditors Or Debt Collectors Or Federal Or State Debt
Both the first and second stimulus check cannot be reduced to pay any federal or state debts. Unlike the first stimulus check, your second stimulus check cannot be reduced if you owe past-due child support payments and is protected from garnishment by creditors and debt collectors.
If you use direct deposit and owe your bank overdraft fees, the bank may deduct these from your payment.
If you are claiming the payments as part of your 2020 tax refund , the payments are no longer protected from past-due child support payments, creditor and debt collectors, and other federal or state debt that you owe . In other words, if you receive your first and second stimulus checks as part of your tax refund instead of direct checks, it may be reduced.
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Myth : I Will Have To Pay Back The Stimulus Check Next Tax Season
Assuming all of the information on your tax returns is correct, you will not repay the check next spring.
You may even receive more money when you file your 2020 taxes. While the checks are based off of your 2019 or 2018 returns to get you money now, they are technically credits for 2020 taxes, per the Tax Foundation. If it turns out that you should receive a larger credit based on your 2020 adjusted gross income , then you will receive the difference next year. “If a taxpayer’s income drops in 2020, they will be eligible for any remaining rebate credit they were not able to claim using their 2019 or 2018 return,” writes the Tax Foundation.
On the other hand, you will not be penalized by the IRS if your 2020 AGI is higher than this year’s, according to the Tax Foundation. “If the amount of a credit a taxpayer qualifies for in 2020 is less than it was based on their 2019 return, it does not have to be paid back.”
That $1400 Stimulus Check Is Great But Do You Owe Taxes On It
Some might naturally wonder: Will my stimulus payment be a part of my annual taxable income?
The Internal Revenue Service has confirmed that millions of Americans have already received their coronavirusstimulus checks under the American Rescue Planand you can rest assured that more is on the way.
Roughly a hundred million more stimulus checkstotaling more than $420 billionare headed to financially struggling Americans through direct deposit and traditional mail over the course of the next several weeks.
As these recipients of the stimulus checks start to spend their money, some might naturally wonder: Will my stimulus payment be a part of my annual taxable income?
According to the IRS, thankfully, you wont be on the hook for any future taxes.
No, the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayers refund or increase the amount they owe when they file their 2020 or 2021 tax return next year, the agency says on its website.
A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs.
Also, be aware that if you earned more than the third check stimulus income limit for your 2020 tax year, and you already used your 2019 tax year to claim the stimulus payment, the IRS will not mandate that you pay that back.
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