We are getting a lot of questions from clients and friends regarding the stimulus checks received in 2020. These are also known as “stimmy” by our younger CPAs and clients.
Our CPA Tax Manager Lauren Roberts breaks down what you need to know for your tax return.
Both of the 2020 stimulus payments are not taxable income on your 2020 tax return. The stimulus payments are advances toward the Recovery Rebate Credit. If you received a second stimulus check, you probably got it in 2021. For our purposes, these are considered 2020 amounts.
Stimulus amounts for 1 & 2:
The first stimulus payment was $1,200 per adult and $500 per dependent child under 17. The second stimulus payment was $600 per adult and $600 per dependent child under 17. Unfortunately, dependents 17 or older are out of luck.
What is the Recovery Rebate Credit and related worksheet?
The recovery rebate credit is reduced by any economic impact (stimulus) payments you received. The 2020 tax return contains a Recovery Rebate Credit Worksheet that reconciles the stimulus payments a taxpayer received to make sure they received the correct amount and are not due an additional payment. Your tax preparer will need to know how much stimulus payment you received for each stimulus. Resource: IRS FAQ re the Recovery Rebate Credit
Why is there a reconciliation?
Ultimately the payments are based on 2020 income (year of hardship – COVID-19 year), but since the IRS had to use the most recent return on file the payment may not have been correct. It’s our understanding that no one who was eligible to receive a payment has to pay it back (unless they passed away before receiving it). So if the taxpayer received too much based on 2020 income they can keep the funds, but some taxpayers may get more money back for reasons like:
- 2018 or 2019 AGI was in the phase-out range or completely phased-out, but 2020 income is not subject to phase-out.
- In 2020 the taxpayers had a baby so they should get the stimulus payment related to the new dependent that would not have been on the 2018 or 2019 return.
Stimulus Phase-Out Ranges (they are different for each payment):
Once the AGI for a filer hits the income limit for the full stimulus check, the amount of the payment is reduced by $5 for each $100 above the threshold. The payment amount phases out completely once a filer’s AGI exceeds the maximum AGI for the filing status. Example for the first stimulus payment: MFJ taxpayers with one dependent child filed 2019 return in July after the first stimulus payment was received. Total payment possible to receive is $2,900 ($1,200 for each adult and $500 for the dependent child). 2018 AGI was used since 2019 return was not on file with IRS at the time. 2018 AGI was $166,000 resulting in a payment of $2,100 (reduced by $800). Calculation is $166,000 AGI less $150,000 phase-out = $16,000 x 5% = $800 reduction. If their AGI is less for 2020, they could get all or a portion of the $800 as a recovery rebate credit.
Keep in mind the AGI the IRS used for the stimulus payments depends on the most recent return the IRS had on file at the time.
First stimulus – payments started being paid out in April. The most recent return on file could have been the 2018 or 2019 return depending on when you filed your 2019 return and when the first stimulus was paid. See the related JMF blog post CARES ACT – Key Personal Tax Provisions.
Second stimulus – Legislation passed 12/27/2020 – Most of the payments were sent in early January 2021. The 2019 return should have been on file by then, unless the return was filed delinquent for 2019.
Income Limit Phaseout Ranges – First stimulus – no children
- Single – $75,000 to $99,000
- MFJ – $150,000 to $198,000
- Head of Household – $112,500 to $136,500
Income Limit Phaseout Ranges – Second stimulus – no children
- Single – $75,000 to $87,000
- MFJ – $150,000 to $174,000
- Head of Household – $112,500 to $124,500
For individuals with qualifying children, these total-phaseout amounts increase by $10,000 for each qualifying child.
If you are unsure about how much stimulus you received:
You as the taxpayer can set up Secure Access account with multifactor authorization at www.irs.gov/account if you need to check what the IRS has on file as the amount sent. Do note, this account only shows the taxpayer’s payments – not household. For example, I can only see my payments and not my spouse’s payments. We’ve seen a taxpayer who files MFJ with two dependents under 17 check their account and they were allocated one dependents pay so it seems the IRS is splitting dependent payments 50/50 for MFJ filers. This link details what info you need to set up the account.
If the payment was direct deposited from the IRS, it should be easy to spot on your bank statements. The IRS sent out letters detailing the first payment on Notice 1444. Although it did not look like a normal IRS notice as it is noted from “The White House” at the top and signed by the president. Notices for the second payment will be sent per the IRS, but we have not seen one yet.
Will there be a Stimulus Payment 3?
This is in the legislative works, but we do not have final details yet. Currently it looks like they may use similar phase-out ranges, but the reduction calculation will be different. They are also trying to include dependents 17 and over. Of course, all subject to change. You may want to speed up filing if 2020 income is lower and would not be phased-out compared to 2019 income. Or you may want to delay filing if 2019 income qualifies for a stimulus payment, but 2020 income does not.
Helpful IRS Links:
IRS Instructions and blank rebate credit worksheet including eligibility info can be found here (see pages 57-59)
First Stimulus Payment Info which includes section on eligibility
IRS Economic Impact Payment Information Center
Get My Payment – only need SSN, DOB, and address to access, but only tells you when and how the payment was issued (no amount provided)