Third stimulus checks and tax season FAQ: This could get messy

0
39


The IRS could base your next stimulus check on either your 2019 or 2020 tax return.


Sarah Tew/CNET

A third stimulus bill is imminent, and the timing of the third check is likely to cause more headaches than either of the first two payments did. Why’s that? It’s tax season. The IRS officially began accepting tax returns on Feb. 12 and will potentially push the filing deadline past April 15 (though there are a number of really good reasons to file early, if you can). Meanwhile, Congress is voting on President Joe Biden’s $1.9 trillion COVID-19 stimulus package Friday or Saturday, with a timeline that includes sending checks that cap out at $1,400 by the end of March — when millions of Americans will be elbows deep in W-2s.

The confluence of tax season and stimulus check No. 3 has left a lot of people asking a lot of questions: Will your third stimulus check eligibility depend on your 2019 taxes or your 2020 return? Will the IRS count any of the three checks as taxable income? What happens if you didn’t file in 2019 or don’t file your 2020 return before the bill passes? What if your eligibility has changed since you last filed? Should the timeline of the impending third relief bill influence when you file?

We’ve got answers for you based on what we know from the most recent proposal for a third stimulus check. We won’t know anything for sure, however, until we can read the final language in a new bill. We’ll continue to update this story.

Why your third stimulus check could arrive during tax season

House Speaker Nancy Pelosi said she expects Congress to have a final bill ready for Biden to sign into law by March 14, which is when some unemployment benefits expire. If Congress follows that timeline, a third stimulus check could arrive during tax season.

This makes things a bit more complicated. For one, the IRS is already including makeup stimulus money from the first two checks with your tax refund this year. It also means the IRS will likely use whichever tax return they have on file most recently (more below.) 


Now playing:
Watch this:

Stimulus check No. 3: What you need to know



2:59

Will the third stimulus check be based on 2019 or 2020 taxes?

The most recent Democratic proposal (PDF) states the IRS would determine your total third stimulus payment based on your adjusted gross income, or AGI, from either your 2020 or 2019 tax returns — whichever the IRS has most recently on file at the time of payment. 

There may be several implications to this. For example, if you earned more in 2020 than in 2019, but the IRS uses your 2019 return (and gives you more stimulus money than you might be eligible for), you won’t have to return that money (more below). 

The IRS is now accepting 2020 tax returns. We recommend filing your taxes as soon as possible for several reasons. The earlier you file, the sooner you’ll get your tax refund (you can estimate the total here) and any missing stimulus money you claimed on your return. You’ll also have a chance to set up direct deposit with the IRS, or fix any errors, which could get your third stimulus check to you faster

dollars-money-bills-currency-6

With tax returns and third stimulus checks potentially occurring at the same time, the IRS could have its hands full.


Angela Lang/CNET

What’s the situation if you made more money in 2020, but the third check is based on your 2019 taxes?

The most recent proposal says the following: 

Taxpayers receiving an advance payment that exceeds their maximum eligible credit based on 2021 tax return information will not be required to repay any amount of the payment to the Treasury. If a taxpayer’s 2021 tax credit exceeds the amount of the advance payment, taxpayers can claim the difference on their 2021 tax returns.

Therefore, if you qualify for the full $1,400 based on your 2020 taxes, but the IRS issued your check based on your 2019 taxes, you could claim the difference a year from now on your 2021 tax return — much like the current Recovery Rebate Credit for missing stimulus check money from the first two rounds.

On the other hand, this also means that if you qualify for the full stimulus payment based on your 2019 taxes, but do not qualify based on your 2020 taxes, and if the IRS used your 2019 return, you won’t have to pay the IRS back for that discrepancy. 

What happens if your third stimulus check never arrives, or if any money is missing? 

Once a final bill is approved, if you’re eligible to receive a third stimulus check, but yours never arrives by direct deposit, paper check or EIP card, you’ll likely have to take another step to claim that money. This happened to millions of people during the first and second round of payments for several different reasons, including IRS errors, out-of-date banking information or addresses and nonfilers not taking an extra step to get the IRS their information.

Much like with the first and second checks, you’ll be able to claim any missing money from the third check owed to you or your dependents during tax season next year, 2022. That’s a long way away. The best thing to do right now to make sure your third check does arrive on time is to file your tax return as soon as possible, even if you don’t usually have to file one.

For more, check out what we know so far about a third stimulus check and who we think will be eligible this time around.



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here