Stimulus Payment and Your 2020 Tax Return
As we prepare to file our 2020 income tax returns, one question that may come up from your tax professional that you will need to be prepared for is: How much stimulus payment did you receive in the spring of 2020 and in January of 2021? The stimulus payments are part of the Recovery Rebate Credit that is authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Both of these payments will need to be reflected on your 2020 personal income tax return. They were a prepayment of a credit that you can claim for 2020. For some people, the payment was based on 2018 tax filings and for some, it was based on 2019 tax filings, depending on which was available to the IRS at the time the payments were being issued.
For your 2020 tax return, the credit will be calculated, in a nutshell, as follows: Determine what credit you actually qualify for based on your actual 2020 information, such as income and number of dependents claimed, then subtract what you actually received for both payments. If the credit is more than what you received, you will claim the balance of the credit on your 2020 tax return. If you received more than you were entitled to, it is a gift from the government at that point. If you received exactly what you were supposed to, no further action is necessary.
As an example, if you received $1,200 in May of 2020 and $400 in January 2021 and after calculating the credit, you were supposed to receive (based on actual 2020 information) $3,000, you will claim a $1,800 tax credit on your 2020 Form 1040.
Please note that if part of your stimulus was taken to pay a debt, such as delinquent child support, you are still considered to have received the money, even though it went to pay a debt on your behalf. If you claim the wrong amount of stimulus payments received, the IRS will be adjusting your tax return for you.
Per the IRS website, you should have received IRS Notice 1444 for the first payment and Notice 1444-B for the second one. Also per the IRS website, if you have an account on IRS.gov (or set one up), you should be able to visit IRS.gov/account to view the amounts of the payments you received.
Consult with your tax professional at Ketel Thorstenson about this or other tax matters because each situation is different. Don’t navigate the difficult and ever changing tax codes and legislation on your own. Ketel Thorstenson CPAs and tax professionals receive advanced training and continuing education all year long to keep our service on the forefront of the tax industry. Call us today for guidance on tax planning, tax return preparation, and tax legislation affects or questions.