How COVID-19 Stimulus Payments will Affect Your 2020 Tax Return

Many taxpayers who received stimulus payments in 2020 wonder how it will be treated when the time comes to file their 2020 tax returns, whether they got the correct amount, or why they did not get it in the first place.

Economic Impact Payments or stimulus payments received in 2020 and early 2021 are not taxable income. Keep notices 1444-B you received regarding your stimulus payments with your 2020 tax records, you will need to provide them to your tax preparer. If you did not keep (or have lost) the notices, you will need to request an Account Transcript for 2020 either online through your IRS “Get Transcripts” account or via phone for mail delivery. It may take several weeks to get transcripts in the mail nowadays, however, your tax preparer can help you obtain transcripts much faster.

Anyone who did not receive stimulus payment(s) or their payment was not the correct amount due to reduced income in 2020, a change in marital filing status, or a change in the number of dependents – including those who are not normally required to file a federal tax return – will need to claim it as a recovery rebate credit on their 2020 federal income tax return. Remember, if you can be claimed as a dependent on someone’s return, you are not eligible for stimulus checks or rebate credit, even if you were not claimed as a dependent.

You may be eligible for a recovery rebate credit if you did not receive a second stimulus payment, and you and your spouse file jointly and only one spouse has a valid SSN. Such couples with a non-immigrant status spouse who has an ITIN or no tax ID, were not eligible for the first round of stimulus payments.

You do not need to complete information about the recovery rebate credit on your 2020 federal tax return if you received the maximum amount of benefits as follows:

  • $1,200 plus $500 for each qualifying child you had in 2020 for the first round and $600 for you and $600 for each qualifying child for the second round, or
  • $2,400 for joint filers in 2020 plus $500 for each qualifying child you had in 2020 for the first round and $1,200 plus $600 for each qualifying child for the second round.

     

    If you received a stimulus payment greater than the recovery rebate credit calculated on the 2020 return (due to increased income in 2020, for example), in most cases you still get to keep the original payment. The excess does not need to be repaid to the IRS. Exceptions include death of the taxpayer or a spouse before receipt of the payment, and nonresident alien status in 2020.

    If you did not receive stimulus payments and instead claim recovery rebate credit on your 2020 tax return, and owe money to the IRS, this credit will first offset your 2020 tax liability, and the remainder, if any, will be applied to your prior tax debt. You will not receive a refund, even though economic impact payments were protected from garnishment and federal and state offset programs.

    If you are not sure how to calculate a recovery rebate credit, find a professional tax preparer to help you out.

    Irina Bobrova is an Enrolled Agent who represents taxpayers before the IRS to resolve their IRS problems.

Asians welcome the year of the Ox

Across eastern Asia on Feb 12, 2021, people will be celebrating Chinese New Year, ushering in the year of the Ox. For the growing Asian population of South Florida, this year’s celebration will be subdued compared to previous years.

Chinese New Year falls on different dates each year because it’s based on the lunar calendar and often called the Spring Festival. It’s the most important holiday in several Asian countries including China, Korea, Indonesia, Malaysia, Myanmar, Thailand, Cambodia, and Philippines.

Spring Festival is when extended families come together and celebrate the beginning of the new year. Gifts are often exchanged and parents often give red envelopes filled with money to children. Lavish dinners with many dishes symbolizing unity and good luck are served. New Year’s rituals span two weeks, so you will often find businesses in east Asia taking a long vacation during this period.

In the US, you will find many of the traditional celebrations, such as dragon and lion dances and the hanging of red lanterns in many China towns across the country. But this year, this is expected to be more subdued, and many families will be celebrating at home.

The Ox from the Chinese Horoscope symbolizes someone who is honest and hardworking. As we all recover from a difficult 2020, I hope the spirit of the Ox imbues us with the strength to take on the recovery, and leads to a prosperous 2021.