As part of the COVID-19 relief and government spending bill signed on Dec 27, 2020, the IRS is sending out the second round of stimulus payments to eligible individuals in early 2021 followed by the first stimulus payments during 2020. Taxpayers have a great deal of questions on how those payments will impact their tax return and what will happen if they have not received them yet. For those taxpayers who have not received their stimulus payments yet, they can still claim them on their 2020 tax return. Both stimulus payments are not taxable, but rather advances on a tax credit, which is also known as Recovery Rebate Credit. The Recovery Rebate Credit is a refundable tax credit that will decrease the amount of the tax you owe or increase any amount of tax refund due.
Taxpayers were able to receive up to $1,200 ($2,400 if married filing jointly) plus $500 for each qualifying child under the first stimulus and up to $600 ($1,200 if married filing jointly) plus $ 600 for each qualifying child under the second stimulus. The stimulus payments/Recovery Rebate Credit is reduced by $5 for each $100 over $75,000 for a single taxpayer ($150,000 if married filing jointly), and it will phase out completely at $99,000 for a single taxpayer ( $198,000 for if married filing jointly). The IRS used the information as reported on the taxpayers’ 2019 tax return to calculate how much they qualify to receive the payments or 2018 tax return if the 2019 had yet to be filed with regard to the first stimulus. It is important to note that for those taxpayers whose income situation changed from 2019 to 2020, they may qualify for the stimulus even if they had not qualified originally, and those taxpayers that may no longer qualify will not have to pay anything back.
If you have not received your stimulus payments yet or are have any questions regarding the stimulus payments and how they may apply to you we are here to help in anyway possible. If you have any questions regarding the stimulus payments/Recovery Rebate Credit and the Covid-19 Relief bill and how they might impact your tax return, or require any other assistance with your tax planning and compliance needs, please do not hesitate to contact one of our knowledgeable team members.