How stimulus payments could impact your tax return

Finance

ROCHESTER, N.Y.(WROC) — Your 2020 tax return could be impacted by the amount of money you received in stimulus payments.

CPA Jamie Block from Mercer Advisors and the New York State Society of CPAs discussed the potential impact Thursday during News 8 at Sunrise.

Many families received funding in the form of stimulus checks in 2020 and another payment earlier this year. What do people need to know about these payments?

The CARES Act that passed on March 27, 2020, allowed individuals to receive an advanced payment of a 2020 tax return credit known as the Recovery Rebate Credit. The first advanced payment was $1,200/person and $500/dependent child. The second round of payments occurred earlier this year. These payments were for $600 per person and dependent children.

Do individuals have to report these payments as income on their 2020 tax return?

No. These stimulus checks are a pre-payment of tax credit based on your 2018 or 2019 income. If your income was too high in these years, the payments may have been reduced or eliminated. You may have received the first payment based on your 2018 income and not the second payment as the IRS used the 2019 income figures.

What happens when someone’s income is lower in 2020 than it was in the prior years?

The income limit is based on your adjusted gross income or AGI. For married individuals, the AGI limit is $150,000-$174,000, $75,000-$87,000 for single & MFS, and $112,000-$124,500 for head of household filers. If your income decreased in 2020, or if you got married, or had a child, you may be entitled to this credit on your 2020 tax return. You must file a 2020 return to get the credit. This credit will offset any tax you have, and any excess will be refunded.

What happens if your income is higher in 2020 and you received money that you probably should not have gotten?

This is one of those rare cases that the IRS is not requiring overpayments of this credit to be repaid. Note that if you received the correct stimulus amounts and are not required to file a tax return, there is no need to file in 2020.

One payment was received in 2020 and one payment was received in 2021. Do you report these on those respective tax returns years?

Here is another nuance in tax reporting. The 2020 payment must be reported on your 2020 return for the Recovery Rebate Credit. The 2021 payment can be reported on either your 2020 or 2021 income tax return. I recommend that if you are entitled to the credit, record the credit for the 2021 payment on your 2020 return so you get cash in your hands quicker.

If you do not know if the stimulus check amounts you received, you can look them up at irs.gov.

Copyright 2021 Nexstar Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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