CPA Chats: ECONOMIC IMPACT PAYMENTS
As so many Americans are receiving their stimulus checks or waiting for them to arrive, CPAs like myself are receiving lots of questions from clients, friends, and family about the tax consequences of these payments.
A little background information:
Economic impact payments are available for certain taxpayers and can be calculated based on the latest filed tax return (either 2018 or 2019 if already filed). Single filers who fall on or under the limits in the table below will receive the full amount of $1,200, and married filing joint taxpayers will receive $2,400. Parents will receive an additional $500 for each qualifying child.
Two big questions I see often:
1) Are these payments taxable? Economic impact payments are not included in your gross income on your 2020 return. This means that they are not taxable and will not reduce your refund or increase the amount you owe when filing your 2020 taxes.
2) Is this just an advance refund that I’ll be expected to pay back when I file my 2020 taxes? Economic impact payments are NOT advance refunds and will not reduce your refund or increase the amount you owe when filing your 2020 taxes.
While these payments are not advance refunds intended to be paid back nor are they taxable, there is a little caveat that could apply to some taxpayers that should be considered.
This payment will be reconciled on the 2020 tax return to determine if a taxpayer received too little. For example, if the adjusted gross income for 2019 exceeds the phaseout threshold, but a lower adjusted income reported for 2020 results in an increased economic impact payment, the additional credit will be refunded or reduce taxes owed in spring 2021. So, if your income decreased from 2018 to 2019, it could be really advantageous to get your 2019 return filed as soon as possible in hopes of receiving the larger stimulus payment within the thresholds. However, from what we understand at this time, they will do a similar reconciliation process for filers who earn above the income threshold limit in 2020 and you could be expected to pay a portion of the payment back to the IRS when filing your return. If you have already received your economic impact payment but believe you should have received a different amount, those credit/deductions will be reconciled on your 2020 tax return.
Another big question/concern I am hearing is people who haven’t received their stimulus checks.
You can check the status of your payment, the payment type, and whether or not the IRS needs more information from you, including your bank account information at the link below.
https://www.irs.gov/coronavirus/get-my-payment
If you have questions about the tax implications of your stimulus payment, let me know. I would love to be able to help or hear some of the concerns you guys are having.