During 2020, you may have qualified to receive an Economic Impact Payment (Payments) authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Beginning in April, Americans began to receive up to $1,200 per adult and $500 for each child under 17 on their 2019 tax return. The IRS worked diligently to make sure every adult who was eligible to receive a payment did, whether it was via direct deposit, check or debit card. Many recipients of this payment are questioning if this payment will affect their taxes.
Here’s good news for you – the stimulus payment will not increase your taxable income. Rather, it will be reported on your 2020 tax return as an advanced credit. It’s understandable that there’s confusion among recipients of the payment because the official term for the payment is “Economic Impact Payment,” which really does not indicate it is a credit, but rather makes it appear as a payment.
Was your income above the thresholds in 2018 and 2019 to qualify for the payment but has dropped in 2020? If so, you could qualify for the credit on your 2020 tax return. Single taxpayers who earn less than $75,000 and married taxpayers who earned less than $150,000, but who previously earned more, were disqualified from receiving the payment in 2020. However, they may see a larger tax refund when completing their 2020 tax return.
While the stimulus check is rightfully top of mind for many Americans right now, there are several other categories that need to be reviewed before the end of the year to ensure you’re maximizing your tax benefits for 2020. Here’s a helpful blog post on that subject to guide you through what you should be checking off your tax-planning checklist before the calendar flips to 2021.
2020 has been a rollercoaster ride, tax situations included. If you have questions about how your taxes might be impacted this year, I’d encourage you to schedule a no-obligation appointment here, so we can get the ball rolling.
Update: Congress passed the second stimulus package on Dec. 21, a relief bill that was signed into law on Dec. 27 by President Donald Trump. Here’s what you should know about the second round of stimulus relief.
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