Uncle Sam is about to send most Americans a check of up to $1,200 — an out-of-the-ordinary move that’s leading some people to wonder if (and how) this seemingly free money will affect their tax refund next year.
These stimulus checks, which are part of the multi-trillion-dollar stimulus package passed in March and could arrive in taxpayer bank accounts as soon as April 15, are intended to ease financial hardships created by the coronavirus. Those who qualify get an amount based on two criteria, as listed on your 2019 tax return (or, if you haven’t filed by the time checks go out, your 2018 tax return):
- How many dependents you claimed under the age of 17 — the more dependents you claimed, the more you’ll get
- How high your adjusted gross income was — the higher your income, the less you’ll get
Americans can get up to $1,200 per person with an additional $500 dollars per dependent. In trying to make sense of it all, people have stumbled on the phrase “advance on future tax refunds,” leading to some confusion:
But there's more to it than that. Here's what you need to know:
Will this eat into my tax refund for 2020?
No. The ‘advance’ you’ve been hearing about is in reference to a special tax credit that’ll appear on the tax return you file in 2021 for the 2020 tax year — a tax credit that wouldn’t have been there if it wasn’t for these stimulus checks.
So the Internal Revenue Service isn't giving you some of your 2020 tax refund upfront. The stimulus check will be in addition to what you would’ve otherwise expected.
Will it count towards my taxable income for 2020?
No. This money is not considered income. It won't be taxable and it won't affect your income tax bracket for 2020.
What if I don’t have to file income taxes?
You still don’t have to. And you will be accounted for.
If you’re a Social Security recipient, the Internal Revenue Service will use information from your SSA-1099 tax form (the one you received in January). You’ll get a direct deposit or a check in the mail from the Treasury — it’ll be the same way you usually receive your benefits from the Social Security Administration. This also goes for Social Security Disability Insurance recipients.
However, both Social Security and Social Security Disability recipients will need to take an additional step if they have dependents under the age of 17 and want to receive that extra $500, per the Social Security website, although specific steps haven't been outlined just yet.
Anyone who doesn’t file income taxes OR get Social Security benefits should fill out the online Internal Revenue Service form that went live on Friday, April 10, allowing non-filers to get their stimulus payments. The portal asks information such as your date of birth, current address, and Social Security numbers for all people who are eligible for payments, as well as optional information such as your direct deposit info.
TurboTax has also created a portal of its own, so non-filers can get their information to the IRS. Go to their stimulus check page, and scroll down to “If you don’t need to file your taxes this year,” to send your banking information and your home address to the Internal Revenue Service so they have the information they need to direct deposit or mail you your check.
Do I still get something if I don’t expect to get a tax refund for 2020?
Some tax credits just mean you owe less money to the government, so if you don’t owe anything, they don’t apply to you.
But the stimulus check is the other kind of tax credit: a refundable tax credit, like the American Opportunity Tax Credit or Earned Income Tax Credit. These are the ones the government will give you a refund for, even if you’ve hit net zero and don't owe anything. You’ll just get a check in the mail for whatever you’re owed (or a direct deposit, if you’ve provided your banking information on your tax return).
There is one major difference between other refundable tax credits and this one, though: You’re getting this refund a year before — or "in advance of "— filing your 2020 tax return that you’ll be claiming it on.
This obviously creates some complications, as outlined and answered below.
What do they consider my adjusted gross income for the purpose of determining my stimulus check eligibility?
You’re looking at line 8b on your form 1040 for the 2019 tax year or line 7 on your form 1040 for the 2018 tax year, as outlined by the National Foundation for Credit Counseling.
As mentioned before, this is based on your 2019 tax return — the one you would’ve filed this year. But if you haven’t filed that by the time checks are issued, the Internal Revenue Service will reference your 2018 tax return. If you haven’t filed either one, and you aren’t in a category of people who’s exempt, you won’t get a check.
What if I qualify for a bigger stimulus check with my 2018 return than with my 2019 return?
If you made less money in 2018 than in 2019, or had more dependents (maybe your child turned 17 last year, or started filing for themselves), your 2018 tax return would qualify you to get more money than your 2019 tax return.
For anyone who has already filed their for the 2019 tax year, there’s no turning back — the Internal Revenue Service will use your most recent tax return to calculate your stimulus check amount.
But if you haven’t filed your return for the year by the time checks are distributed, the Internal Revenue Service will reference your 2018 tax return. So if you want to hold off, you can — especially since the deadline has been extended to July 15, 2020. The government won’t ask for stimulus money to be returned if your 2019 return winds up being ‘worth’ less.
What if my finances or my family change by the time I file my 2020 taxes next year?
This is a unique tax credit in that you’re getting these checks now, for a tax return you’ll file next year. A lot of Americans will find that, by the time they're filing their 2020 tax return, their circumstances have changed in one of the two ways that affect your stimulus check amount — you could gain or lose a dependent, for example, or your income could change significantly.
Rest assured that you won’t be penalized one way or another when you file your taxes for 2020. Anyone who newly qualifies will get the money they're owed in the form of a refundable tax credit (a higher tax refund or a lower tax bill), and anyone who no longer qualifies will not get their money clawed back.
"The rebate is a refundable tax credit applied on your 2020 tax return, but advanced to you based on your 2018 or 2019 income," Garrett Watson, a senior policy analyst at the Tax Foundation, explains to Money. "Any adjustment to your rebate based on your 2020 income will only occur in the taxpayer's favor."
Think about it this way: The amount you get in your stimulus check in the coming months is what you get as determined by your 2019 or 2018 tax return. And next year, after taxes for 2020 are filed, the Internal Revenue Service will reassess to see if anyone qualifies to get more money based on their 2020 returns, but it won't reassess to see if anyone no longer qualifies or should get less money.
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