Does the stimulus check affect individual taxes?

-


The tax deadline is swiftly approaching and with it, a need to get all of your financial affairs in order. But this year is different from the last. This year, American taxpayers are considering how their stimulus checks might affect their tax bills. 

With three total stimulus bills to consider, you might be wondering how these monetary government checks will play a role in filing your taxes. And in this guide, we’ll discuss just that while answering the question does the stimulus check affect individual taxes?


Well, does the stimulus check affect individual taxes?

The short answer: No. Great news, stimulus checks, which include the following, are not taxable:


  • $1,200 in April 2020 as a part of the CARES Act

  • $600 in Jan 2020 as part of the Coronavirus Response and Relief Supplemental Appropriations Act

  • $1400 in March 2021 as part of the American Rescue Plan Act


This money is not considered income and therefore will not be taxed.


Will I still need to have information on the stimulus money I received to pay my taxes?

As a general rule of thumb, it’s good to hang on to any documentation related to your financials, be it earned income, stocks, bonds, retirement funds, etc. And stimulus money documentation falls under this umbrella as well. 


You may be thinking, “what kind of notification? I just got a direct deposit of the stimulus cash.” Good question. In addition to receiving either a direct deposit or a check from the government with your stimulus money, you should have also received what’s known as a Notice 1444 and this is what you’ll want to have on hand when filing your taxes.


What’s a Notice 1444?

A Notice 1444 is a letter from the IRS that each stimulus check recipient should have received at least within 15 days after receiving their stimulus check. Each letter includes confirmation that it sent you a stimulus check and the total amount you received. This letter is important for several reasons. First, it’s a physical confirmation of your check that you can keep for your records. And second, if you disagree with the sum you received, it could be the basis of a claim to argue what you’re owed.


For tax purposes, you can use your Notice 1444 to claim a Recovery Rebate Credit when you file your taxes. The Recovery Rebate Credit is for anyone who believes they did not receive the full stimulus amount they were entitled to. 


Should you believe you are owed money you did not receive, you have to file taxes even if you are a non-filer per the IRS rules.


How do I know if I qualify for the Recovery Rebate Credit?

As mentioned above, you first must determine whether or not the amount you received in stimulus money was correct. If you find that the figure was inaccurate (for instance, perhaps your payment didn’t cover a child or another dependent you have listed), then you can claim the credit.


Other eligibility conditions include: 


  • Citizenship: You must have been a US citizen or US resident alien in 2020

  • Independent: You cannot have been claimed as a dependent on someone else’s stimulus check

  • Proof of Social Security number: You must have a valid Social Security number before your 2020 tax return


How might my 2020 taxes make me eligible for more stimulus money?

As it turns out, you might actually be eligible for more stimulus funds based on your 2020 taxes. That’s because the IRS is calculating the amount of the Recovery Rebate Credit based on your 2020 taxes, which are due by May 17. 


How? If your 2020 taxes make you eligible but you did not receive the correct amount, you can claim the Recovery Rebate Credit. For example, let’s say you are single, your adjusted gross income is less than $75,000 and your stimulus payment was less than $1,200, you are eligible to claim the credit. And finally, remember that clerical errors can happen. If one of your stimulus checks was smaller than you imagined, the IRS may have failed to include one of your children or dependents.


Can a new baby make a difference in my stimulus payment?

Good news for new parents: if you had a baby in 2020, the IRS may not have had this child listed as a dependent on your tax forms when it released the first and second stimulus checks. That means you are eligible to claim your Recovery Rebate Credit. 


Still iffy on whether or not you got the correct stimulus amount? Or wondering exactly how to recover owed stimulus funds? The best solution is to speak to a tax accountant who can walk you through the necessary paperwork, information, and steps to claim a Recovery Rebate Credit and enjoy the extra cash it affords. With their help, filing this year’s taxes will be easier than you think. 

Comments

Post a Comment

Popular posts from this blog

What Does 2021 Hold For Small Businesses Digital Financial Services?

-
Image
If 2020 taught us anything, it’s that digital financial services are here to stay. Lockdowns, quarantines, and social distancing all caused by the global COVID-19 pandemic illustrated not just the need but the necessity for virtual banking services. Thanks to the tech and accounting experts, handling one’s business from the comfort of a home office became possible and helped millions of small businesses stay afloat. And the use of these digital tools is only going to improve and spread in 2021. Forced to digitally transform, banks and financial institutions, which were deemed essential, have evolved their services to serve a new age, one that’s more prepared for a disaster and can be accessed anywhere.   In this guide, we’ll look at what digital financial services have in store for small businesses in 2021.   Mobile Expansion Mobile banking has become the new normal within the last 18 months, pushed forward by the isolation of the coronavirus. This might not sound too surprisi...
Read more

First-Time Investor? Here’s What You Need to Know About Taxes

-
Image
With the advent of apps and web services geared toward casual, amateur investors—Robinhood, Acorns, and Zacks Trade, for example—the number of people trying their hand at trading stocks is increasing daily.  This can be a great way to make some money and enjoy yourself while doing it. But if you’re not prepared come tax time, you could find that you owe more money than you bargained for thanks to your trading habit.  If you’re just getting into investing, here’s what you need to know about taxes.  Keep records of your transactions While the app or brokerage you use will maintain reliable records, it’s a good idea to keep your own in case something happens. After all, companies do get cyber hacked, have outages, and sometimes lose data. If that were to happen around tax time, you could end up without the information you need to file properly.  The things you should track include:  What stocks you’ve purchased Number of shares What you’ve sold Dates of all transac...
Read more

PPP Alert: New Shot for Your Tax-Free Cash

-
Image
  PPP Alert: New Shot for Your Tax-Free Cash  Did you miss out on the first two opportunities to receive your tax-free Paycheck Protection Program (PPP) cash? Many did miss out. Why? One reason: the word “loan.” Who wants a loan? No one. Well, almost no one. But who wants a cash gift, tax-free? If you do, read on for the details. But first, you should know that the big picture works like this:       You obtain your PPP tax-free monies from a lender (it’s called a “loan,” but watch that word disappear as you read this article).       You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.       You apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 perc...
Read more