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Stimulus checks and taxes: What you need to know before filing your 2020 income tax returns

Stimulus checks and taxes: What you need to know before filing your 2020 income tax returns

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Stimulus checks and taxes: What you need to know before filing your 2020 income tax returns

Aimee Picchi
|  Special to USA TODAY
COVID relief: Biden introduces plan that includes $1,400 stimulus checksJoe Biden introduced a $1.9 trillion spending package that aims to speed distribution of the coronavirus vaccines and provide economic relief.Associated Press, USA TODAYAmericans have now received two rounds of stimulus checks, and questions abound about how these payments tie into your 2020 tax returns as filing season approaches.There’s a link between your tax returns and the stimulus checks: the two payments – the first providing $1,200 per eligible adult and $500 per eligible child and the second distributing $600 for each qualifying adult and child – were based on the adjusted gross income reported on your most recent tax return.But the process of distributing the stimulus payments hasn’t always gone smoothly. In some cases, people didn’t get their checks at all – or may have received the wrong amount, given life changes like a job loss or the birth of a child.The good news is that the 2020 tax filing season will allow people who missed out on a check or received too little to claim their full stimulus payments, which the IRS will send later this year via their tax refunds.“If you didn’t receive the full payment you were entitled to, then it’s possible that when you are filing your 2020 tax return you may end up getting more money,” says Eric Bronnenkant, head of tax at financial services firm Betterment.Biden’s push: How president’s executive orders could help America’s neediest who have been battered by COVID-19 pandemicCalling in sick:COVID causes record numbers of job absences in 2020But, if you received more than you were entitled to, the IRS can’t ask for the money back, he notes. Some people whose incomes jumped in 2019 or 2020 compared with their earlier tax returns – which the IRS relied on to determine whether they qualified for the payments – may be in this situation.“If your economic situation change – let’s say you qualified based on 2018 or 2019 income because it was lower, but your economic situation improved for 2020 – the IRS actually can’t ask for any of that money back,” Bronnenkant adds. “Your situation can’t get worse in that scenario.”Here are the basics of what to know about your taxes and the stimulus checks:Will I owe taxes on the stimulus checks?No, because the stimulus checks aren’t considered income by the IRS, notes Kathy Pickering, chief tax officer at H&R Block. Instead, they are prepaid tax credits for your 2020 tax return, authorized by two relief bills passed last year that were aimed at stabilizing the U.S. economy amid the coronavirus pandemic.“If you got the full amount for the first and second payments, you don’t need to do anything,” Pickering notes.I’m not sure I received the right amount. What should I do?First, check your two stimulus payments against your 2020 adjusted gross income as well as your family situation. That’s because the IRS based your two stimulus checks on either your 2019 or 2018 tax returns – but your income or family size could have changed in 2020.For instance, the stimulus checks directed a combined $1,100 to each dependent child 16 and under – but if you had a baby in 2020, the IRS wouldn’t have known that given the tax agency won’t start accepting 2020 tax returns until Feb. 12. In other words, you wouldn’t have received any stimulus money for your child, even though your family qualifies for the additional $1,100.Save better, spend better: Money tips and advice delivered right to your inbox. Sign up hereIn some cases, people didn’t receive checks because of glitches or incorrect bank account information with the IRS. In those situations, people can reconcile their lack of payment when they file their 2020 tax returns.  To figure out if you are owed money, turn to the IRS’ recovery rebate worksheet, which is available in its 2020 instructions for filing your tax return (Form 1040.)If the calculation on the worksheet is higher than zero, you can claim that amount as a recovery rebate credit on Line 30 of your tax returns, the IRS says.My income changed since I last filed my taxes. What should I do?Taxpayers might not have qualified for the full stimulus checks if their earnings were above the income cutoff based on their 2018 or 2019 tax returns. Single people earning below $75,000 or married couples with a combined income below $150,000 qualified for the checks, with the amounts tapering off until the payments were cut off entirely for upper-income families.But 2020 was a rough year, with millions losing their jobs or taking income hits due to cuts in their work hours. That means some people who didn’t qualify for the full payments based on their 2018 or 2019 tax returns might qualify in 2020 if their income was lower last year.In that case, they should use the recovery rebate worksheet to calculate how much they are owed and claim that amount on Line 30 on their 2020 tax return. They’ll receive the stimulus payments in their refund check.But as Betterment’s Bronnenkant noted above, if you received stimulus payments based on older tax returns but don’t actually qualify based on your 2020 returns, you won’t have to pay back the IRS.How will the stimulus checks impact my tax refund – and when will I get it?How tax brackets affect what you pay in income taxesWhy being taxed, say 22% of your income, is a lot more complicated than you may assume. Here’s a breakdown of what you actually pay in income taxes.Just the FAQs, USA TODAYIf you are owed more money from the two rounds of stimulus payments, the IRS will provide the additional payments with your refund check. Because the stimulus payments aren’t considered income by the tax agency, it won’t impact your refund by increasing your adjusted gross income or putting you in a higher tax bracket, for instance.As noted earlier, taxpayers will have to wait longer get their tax refunds this year since the IRS won’t even begin accepting returns until Feb. 12, about two weeks later than is typical. The IRS is urging taxpayers to file electronically to receive their refunds in the shortest amount of time, with the agency projecting that 9 of 10 taxpayers who e-file will receive their refunds within 21 days.Aimee Picchi is a business journalist whose work appears in publications including USA TODAY, CBS News and Consumer Reports. She spent almost a decade covering tech and media for Bloomberg News. You can find her on Twitter at @aimeepicchi.

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