Stimulus Checks and Taxes: What You Need to Know About Claiming Missing Money and Getting a Bigger Refund
Confusion over taxes is set to reach new heights this year due to — what else? — the coronavirus outbreak.
As Americans file their income tax returns for 2020, they're trying to figure out how to sum up a year in which pretty much everything got upended by the pandemic. On top of that, they're wondering how their stimulus checks factor into the equation.
So far, the government has provided two rounds of Economic Impact Payments to help people through the crisis. In the first round, the IRS delivered more than $270 billion in some 160 million payments. In the second, the agency sent out $142 billion in about 147 million payments. But due to the dire economic situation, both relief programs were rushed. Some people got the wrong amount of money; others had their payments delayed. In all cases, solid answers on what to do about the errors were hard to come by.
Tax season is an opportunity to rectify that. Here's everything you could possibly want to know about the stimulus checks and your 2020 taxes.
Are stimulus checks taxed?
Per the IRS, the Economic Impact Payments are not considered income. Unlike unemployment benefits, you do not have to pay taxes on them. In fact, you don't need to mention the stimulus checks on your federal return unless you think you're owed more by the government than the amount you got.
"If you're fully paid out, there's nothing more that you need to claim," says Kathy Pickering, chief tax officer at H&R Block. "Don't mess with it. You don't have to worry about it at all."
Line 30 and the Recovery Rebate Credit
You will, however, have to take action if you think you were eligible for the stimulus checks and either didn't receive them or didn't get the right amounts.
As a refresher: The first round of stimulus payments, nicknamed EIP 1, went out in spring 2020. Taxpayers earning $75,000 or less qualified for $1,200, while married couples earning $150,000 or less qualified for $2,400. People could also receive an extra $500 per dependent under age 17.
The second round of stimulus payments, or EIP 2, went out in the beginning of this year. The income thresholds were the same, but the checks themselves were different: $600 for single taxpayers and $1,200 for couples filing jointly. Dependent payments rose to $600.
On paper, the stimulus checks were technically advance payments on what the IRS deemed a Recovery Rebate Credit. So if you got the full amounts, you've effectively already claimed the credit.
If you didn’t get the first and/or second stimulus checks — or got less than the full amounts because your income, filing status or family size changed — you may qualify to claim the Recovery Rebate Credit on your 2020 taxes. To do this, you have to submit a tax return (even if you don't normally file). Specifically, you have to fill out Line 30 on Form 1040 or 1040-SR.
This requires some math. Most online tax preparers will calculate the credit for you, but you may also fill out the Recovery Rebate Credit worksheet.
"You need to find out how much you received, how much you are due, and you can claim the balance," says Mark Steber, Jackson Hewitt's chief tax officer.
What information do you need to claim the Recovery Rebate Credit?
The worksheet mentioned above asks whether you can be claimed as a dependent and whether you have a valid Social Security number. Then it wants to know your EIP 1 and EIP 2 amounts.
Don't remember how big those stimulus checks were? You'll need to pull the information from the letters the IRS sent you in 2020 and 2021 (you may remember the drama over how they were signed by then-President Donald Trump). Sent 15 days after your payments were made, IRS Notice 1444 and Notice 1444-B contain details about your stimulus check amounts.
If you accidentally threw away the stimulus check letters, no biggie.
"A lot of people opened that letter and tossed it out. They're like, 'Oh no, now what do I do?'" Pickering says. "If you received a direct deposit, you have a bank statement that shows how much money you received. That's all you need in order to do the reconciliation."
You can also get the information by making an IRS account here.
How the stimulus payments could affect your 2020 tax refund
If you've correctly claimed the Recovery Rebate Credit, the IRS will add the money you're due to your 2020 tax refund. So if your refund was set to be $1,000, and you're owed another $1,800 from missing stimulus checks, you'll get $2,800 total.
This also works in reverse. If you're on the hook to pay taxes, the IRS will reduce your bill by the amount of your stimulus checks. Say you owe the government $5,000 but are due $1,800 in EIPs. Your bill will be $3,200.
The Recovery Rebate Credit may also impact your state taxes, according to The New York Times.
How long it will take to get a stimulus check after filing taxes?
The IRS sends out most tax refunds within 21 days, or three weeks, of accepting your return. If your taxes are incomplete, impacted by fraud, require close review or contain errors, you may have to wait a while for your refund.
The fastest way to get your refund — and any remaining EIP funds — is to file digitally and select direct deposit as your refund method. You can check the Where's My Refund? page, which refreshes daily, starting 24 hours after sending in an electronic return and four weeks after mailing your paper return.
What if you make a mistake?
It's not the end of the world if you mess up while trying to figure out how much stimulus money the government owes you.
Although the IRS said it won't proactively figure out how much people are owed, it will fix Line 30 errors.
In that case, "the IRS will calculate the correct amount of the Recovery Rebate Credit, make the correction to your tax return and continue processing your return," according to its website. If this happens, you'll know because the IRS will send you a notice. This may delay your tax return processing a little.
What if your 2020 taxes make it so the stimulus checks you already got were too big?
EIP 1 and EIP 2 were based on the adjusted gross income reported on your 2018 and 2019 tax returns. As mentioned above, they had income limits over which stimulus checks decreased and eventually phased out.
If your income from 2018/2019 changed in 2020 — and based on that income level, you don't qualify for the aid you already got — don't worry. The IRS has said it's not clawing back excess funds from people whose stimulus checks were too big. It's more concerned with taxpayers whose stimulus checks were too small.
"If you got paid too much money, you do not have to pay that back," Pickering says. "That's something that should make people feel really relieved."
When to file taxes to maximize your third stimulus check
Most of the above advice deals with the first and second stimulus checks. But a third may be on the horizon — and the payment may drop just as most of the country is filing its 2020 taxes.
Lawmakers are still deliberating, but it looks like the third stimulus check, if passed, will be based on people's 2019 or 2020 tax data. The IRS will probably use whichever return was filed most recently.
This tees up a timing issue for people who fall near the income thresholds. The broad strokes are this: If your income dropped between 2019 and 2020, you'll want to file early so as to maximize the amount of EIP money you're eligible for. But if your income increased last year, you may want to delay until closer to the deadline on the chance that Congress approves a third stimulus check before April 15.
More from Money:
Answers to All Your 2021 Tax Questions, From Stimulus Checks to New Deductions
Is There a 'Best' Time to File Your Taxes?
What to Do if You Haven't Received Your Second Stimulus Check Yet