Here are the agreed upon facts:
- The “Stimulus” is also called an Economic Impact Payment.
- Most taxpayers received two rounds of payments; one in 2020 & another in early 2021
- Dependents over the age of 17 do not qualify for a “stimulus” payment
Some surprising information:
- All “stimulus” payments are advance payments of a NEW CREDIT on the 2020 tax return. The 2020 tax return calculates the amount of the refundable credit you are eligible for, based on your 2020 tax return. Eligibility is based on earnings, filing status, and eligible dependents.
- All advance payments were based on prior year tax data to determine eligibility.
- Taxpayers must report the amount of the advance payments received.
- Advance payments are NOT taxable and will NOT be added to your income.
- There is no claw-back provision in the law. This means if you received more than you are eligible for in 2020, it is your lucky day. The IRS will not require any repayment.
- If the 2020 return shows you are eligible for additional credit amounts not already paid out, the difference will be included as a credit on your tax return. It will either off-set your tax due or be refunded to you.
- The calendar year rule does not apply. This simply means the second payment received in 2021 does need to be included on the 2020 return to ensure proper reconciliation. I understand this one is weird, but Congress said so.
To sum up:
- Yes, I need to know the amounts of each one separately
- No, it is not taxable
- Yes, I need the info for the January 2021 payment you received
To Our Clients:
- We understand the frustration of having to provide additional information and the delay it can sometimes cause in processing. As we work hard to protect our client’s identities and ensure all credits are properly taken, we appreciate your patience. The IRS is asking more and more of tax preparers when it comes to documentation, they are even going as far as penalizing a preparer up to $500 per credit, per tax return if we do not follow the strict guidelines. When a typical return claims at least two of the credits under scrutiny, we are not willing to take the risk or put your return in jeopardy.
Oh yeah:
- No, I do not know anything about a 3rd stimulus. I know bills are floating around in Congress, but as of this moment, nothing has been passed or signed into law.
- I will let you know when/if there is any concrete information.
As filing season gets under way – FINALLY – I will pop on now and then if something major comes up. In the meantime, be nice to your tax professional and remember we have no control over what Congress does next.
Got questions? You know where to find me.
Amy
