Tax Tips: Stimulus Payment and Your Tax Return
As we prepare to file our 2021 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 2021? The stimulus payments are part of the Recovery Rebate Credit that is authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Unlike the stimulus payments for 2020 that went out two times, Spring of 2020 (EIP I) and January of 2021 (EIP II), most individuals or families received just one payment that was distributed in March 2021. The maximum amount a person or family could receive for 2021 was $1,400 per qualifying individual. Another difference between the 2021 and the 2020 payments was the 2021 payments could include qualifying dependents over age 17. Payments were issued by direct deposit, physical check, or by EIP Card (similar to a prepaid debit card).
The payment will need to be reconciled on your 2021 personal income tax return. It was a prepayment of a credit that you can claim for 2021. For some people, the payment was based on 2019 tax filings and for some, it was based on 2020 tax filings, depending on which was available to the IRS at the time the payments were being issued.
For your 2021 tax return, the credit will be calculated, in a nutshell, as follows: Determine what credit you qualify for based on your actual 2021 information, such as income and number of dependents claimed, then subtract what you actually received for your payment (spouses may have to add their totals together). If the credit is more than what you received, you will claim the balance of the credit on your 2021 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.
For example, if you received $1,400 in March of 2021 and after calculating the credit, you were supposed to receive (based on actual 2021 information) $2,800, maybe because of claiming a dependent every other year, you will claim a $1,400 tax credit on your 2021 Form 1040.
Please note that if part of your stimulus was taken to pay a debt that was past due federal income tax, 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 the IRS will adjust your tax return for you.
Per the IRS website, you should have received IRS Notice 1444-C in the Spring when the first payment went out and Letter 6475 in January 2022, letting you know the amount of the EIP III received. 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.