One of the more tax-troubling issues this year has been the distribution of the Economic Impact Payments, also known as stimulus checks. These payments were meant to provide financial assistance to individuals and families struggling during the initial outbreak of the COVID-19 pandemic, but many people are reporting a missing stimulus check. In this blog we’ll go through the details of the stimulus checks and how to claim a missing check on your 2020 return.
A Refresher on Stimulus Checks
Congress authorized the first stimulus check payment in March 2020 as part of the CARES Act. Each filer was to receive $1,200 ($2,400 if married and filing a joint return) and $500 per dependent child under age 17. However, the payments were phased out for higher-income taxpayers at a rate of 5% of the taxpayer’s adjusted gross income (AGI) in excess of a threshold, also based upon the taxpayer’s AGI:
- Unmarried Taxpayers (and Married Filing Separately): $75,000 AGI
- Head of Household: $112,500 AGI
- Married Taxpayers Filing Jointly: $150,000 AGI
As part of the COVID-Related Tax Relief Act (COVIDTRA), Congress authorized another set of stimulus checks to be issued in January 2021. Each filer was to receive $600 ($1,200 if married and filing a joint return) and $600 per dependent child under age 17.
Similar to round one, the stimulus payments are phased out for people with higher incomes. The phase out income levels are the same as round one; however, the payments are more quickly phased out as compared to round one. For example, a married couple filing jointly with AGI of more than $174,000 will not receive the second stimulus payments.
It’s important to note that the stimulus checks are actually a refundable tax credit on the 2020 tax return. To meet the Congressional mandate, the IRS issued the payments in advance based upon each family’s makeup and income on a prior tax return.
How Do I Claim My Missing Stimulus Check?
If you are among those eligible for a check who haven’t yet received it, or the amount you received is less than what you are allowed, take heart. Since it is really a credit on the 2020 tax return, you can claim your missing or additional amount when you file your 2020 return. But this means that if you wouldn’t normally have to file a return, you will need to do so in order to get your payment.
However, here is yet another potential problem: when you claim the rebate credit on your 2020 return, it will be based upon your 2020 AGI and family makeup, which may or may not be to your benefit. Here are some situations that you may encounter:
- Example #1A – You had a dependent child in 2019 who had since become emancipated in 2020. If you received a stimulus check in 2020, it would have included the dependent’s rebate amount. However, if it is based on the 2020 return, it will not. On the bright side, your dependent will be eligible for a $1,200 rebate in their 2020 return if it is not phased out. More good news: you aren’t required to repay the dependent portion of the payment you received.
- Example #1B – You are divorced and claimed your 10-year-old son as a dependent on your 2019 return, and based on your 2019 return, you received a $1,700 stimulus check ($1,200 for yourself and $500 for your son). Your ex-spouse will claim your son as a dependent and will claim the dependent portion of the recovery rebate credit on his or her 2020 return. You will not be required to pay back the $500 dependent portion of the payment that you received.
- Example #2 – The IRS used your 2018 AGI to figure your rebate, and because it was over the threshold, it was partially phased out, and the payment you received was $800 instead of $1,200. Your 2020 AGI is below the phaseout threshold, so you will be able to receive the $400 as a credit on your 2020 tax return.
- Example #3 – The opposite of example #2: when you file your 2020 return, the amount of the rebate you receive will be larger than what you are entitled to on your 2020 return. You will not have to pay back the difference.
These are only a few examples of the many situations that a change in filing status, dependents, and/or AGI can create with regard to the recovery rebate credit when filing your 2020 tax return. One good thing is that Congress wrote the law so that if the payment you received was larger than the recovery rebate credit you are entitled to on your 2020 return, you will not have to pay back any of the difference. On the other hand, if your check was less than what’s allowed on your 2020 return, you can claim the difference as a credit on the 2020 return.
Be sure to keep the confirmation that the IRS sent you showing the amount of your stimulus check; you’ll need it when preparing your 2020 return.
If Cray Kaiser is preparing your tax return this year, we will automatically take care of reconciling the advance rebate with the amount determined on your 2020 return. Please call us at 630-953-4900 if you have specific questions about your missing stimulus check.
Please note that this blog is based on tax laws effective in January 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.