Reconciling Your COVID Stimulus Payment on Your Tax Return

Stimulus check, cash, and tax formThe COVID stimulus payment provided earlier this year brought financial relief to many who were struggling near the beginning of the pandemic. But it also brought some confusion to tax payers about how this stimulus check would be handled when it was time to file taxes. While we have touched on this topic in the past, we wanted to provide you with some more specific information regarding how this income is reported on your return, as well as addressing some other common questions about the stimulus payments.

Do You Need to Report Your Stimulus Payment?

Because your COVID stimulus check was non-taxable income, you do not need to report it on your 2020 tax return. The amount you received was not an advance on your tax refund, and will not reduce any refund you get in 2021 or increase any amount you may owe.

There will be an additional worksheet available for some tax filers this year for reporting your total Economic Impact Payment. However, the IRS has advised that this worksheet is only for those who did not receive a stimulus payment or who received less than the maximum payment amount.

Receiving Additional Stimulus Payments

If you did receive less than the maximum payment per person—or if you had a child in 2020 for whom you didn’t receive the additional $500 stimulus payment—that additional worksheet provides you with an opportunity to claim the full amount for which you qualify. When you received your stimulus payment, you should have also received Notice 1444 in the mail stating exactly how much you were given.

Fill out the new worksheet and submit it along with Notice 1444. If you qualify for any additional stimulus payments, the Recovery Rebate Credit (the official name for the stimulus payment people received) will be applied to your tax return. Note that, if you owe taxes, this may simply reduce your tax bill; otherwise, any extra amount you qualify for will be distributed with your tax refund.

Paying Back Overpaid Amounts

Let’s say that, instead of qualifying for an additional stimulus amount, you actually discover that you should have gotten less. Stimulus payments were based on the income you reported on either your 2018 or 2019 tax return (whichever was filed most recently). Single filers with an adjusted gross income (AGI) below $75,000 and couples with an AGI below $150,000 qualified for the full amount, plus $500 per dependent child. Payments began to phase out at a rate of $5 per $100 over the threshold.

So, if your income was below $75,000 in 2019, you would have been paid the full stimulus amount. But if your income exceeded this threshold in 2020, you might be wondering if you have to repay any excess you were given. Or, you might have received a $500 credit for a child who turned 17 this year, no longer qualifying you for that payment.

The IRS realizes that there may be some Americans who were overpaid in their stimulus checks, but these instances are going to be few and far between. So, there is currently no provision for taxpayers to pay back any excess stimulus payments. Consider it an extra stimulus amount to help you get through this difficult year, and don’t worry about returning any portion of it.

Getting Assistance with Your Taxes

For most Americans, your COVID stimulus payments should not overly complicate your taxes. The only individuals who will need to fill out the extra worksheet are, as mentioned above, those who did not receive the full stimulus amount. If you fall into this category and want to ensure that you get all that you qualify for, you will need to reconcile that payment amount with what you should have received via the new worksheet and Notice 1444.

Because this is a new tax worksheet, many taxpayers may find it confusing, and we strongly encourage you to get help with filing your tax return this year. It’s important that you report your actual 2020 income properly so that you can receive the full stimulus amount you should have received earlier this year.

To get assistance with filing your 2020 tax return, contact Demian & Company CPAs today. We’ll sit down with you to discuss your COVID stimulus payment, income, and other relevant tax information so that we can not only get you the full stimulus amount you deserve, but the best outcome on your tax return as well. Call and schedule your appointment today.