Tax Season is upon us - whether you received both stimulus checks in 2020 or only the first one, your 2019 and 2020 taxes will determine the size of your stimulus check in 2021. The two previous stimulus payments were based on adjusted gross income reported on your most recent tax return.
Doing your taxes can be complicated enough, even without the addition of stimulus checks and a global pandemic. These Frequently Asked Questions can help you understand what you may need to do this tax season to get the most out of your stimulus payments.
How do 2020 taxes affect my stimulus check?
We won’t know exactly, until the government decides. But the system will likely be similar to the first and second round of stimulus payments. The third round could be based on your 2019 or 2020 taxes, whichever the IRS has on file to process your payment. If your financial situation has changed drastically between 2019 and 2020, you may qualify for the full amount, even if the check you receive is based on your 2019 taxes. In this case, to receive the full amount, you may have to wait a year and claim another rebate credit on your 2021 taxes. The third stimulus payment is expected to fall within this year’s tax season. This information is based on the current proposal from lawmakers.
Never received your second stimulus payment? It’s not too late. What is a Recovery Rebate Credit?
January 15 was the cutoff for the IRS to send the second stimulus payment to bank accounts or through the mail. When filing your 2020 taxes, if you haven’t received the payment, you’ll need to claim money from the $600 payment on your federal tax returns as a Recovery Rebate Credit on 2020 Form 1040 or Form 1040-SR.
If you’re still missing part of your payment from the first round of stimulus checks, or you’re not sure if you are, you can fill out the Recovery Rebate Credit Worksheet provided by the IRS. You will need Notice 1444 from the first payment and Notice 1444-B from the second payment that the IRS sent to you, to fill out the form completely.
When do you need to file? Does filing my taxes faster help speed up or slow down my third stimulus payment?
The first day the IRS began processing tax returns was on February 12. The deadline to submit taxes without an extension is April 15. You can file your taxes now. While there is no guarantee filing your taxes faster will help you get your stimulus check sooner, it could affect whether the IRS uses your 2019 or 2020 returns to calculate your stimulus payment. One way to help you be one of the first people to receive the third stimulus payment is to sign up for the IRS’s direct deposit system.
Can non-filers get a recovery rebate credit?
Yes, but they must file form 1040 or form 1040-SR to qualify for the rebate credit. The IRS provides a free tax filing service on their website to anyone making less than $72,000 in the fiscal year.
Do you pay taxes on stimulus payments?
No, the IRS has stated that stimulus payments do not count as a form of income and therefore are not taxed.
How is my tax return related to stimulus payments?
The IRS used the information provided in your tax returns from 2019 to determine how much money you should receive in stimulus payments in spring 2020 and again in December. It is likely they will use the same system to determine how much money you qualify to receive during this tax season.
Am I still eligible for a stimulus payment if I my financial position changed in the last year?
If your financial position changed since your 2019 taxes were filed, for example, if you are earning less income, you can claim it on your 2020 taxes.
Does the IRS reduce my stimulus check and withhold some of the funds to pay off other debts I owe?
The Consolidated Appropriations Act protects and prevents the IRS from garnishing stimulus checks for unpaid taxes, but this no longer applies to people who are claiming their missing stimulus checks on their tax returns.
Do I have to give my stimulus check back if I qualify for less with next year’s taxes?
No, you aren’t required to pay back your stimulus payments even if your 2020 tax returns reveal you didn’t qualify for the payments you received.
Doing your taxes can be complicated enough, even without the addition of stimulus checks and a global pandemic. These Frequently Asked Questions can help you understand what you may need to do this tax season to get the most out of your stimulus payments.