The tax deadline is swiftly approaching and with it, a need to get all of your financial affairs in order. But this year is different from the last. This year, American taxpayers are considering how their stimulus checks might affect their tax bills.
With three total stimulus bills to consider, you might be wondering how these monetary government checks will play a role in filing your taxes. And in this guide, we’ll discuss just that while answering the question does the stimulus check affect individual taxes?
Well, does the stimulus check affect individual taxes?
The short answer: No. Great news, stimulus checks, which include the following, are not taxable:
- $1,200 in April 2020 as a part of the CARES Act
- $600 in Jan 2020 as part of the Coronavirus Response and Relief Supplemental Appropriations Act
- $1400 in March 2021 as part of the American Rescue Plan Act.
(This money is not considered income and therefore will not be taxed.)
Will I still need to have information on the stimulus money I received to pay my taxes? As a general rule of thumb, it’s good to hang on to any documentation related to your financials, be it earned income, stocks, bonds, retirement funds, etc. And stimulus money documentation falls under this umbrella as well. You may be thinking, “what kind of notification? I just got a direct deposit of the stimulus cash.” Good question. In addition to receiving either a direct deposit or a check from the government with your stimulus money, you should have also received what’s known as a Notice 1444 and this is what you’ll want to have on hand when filing your taxes.
What’s a Notice 1444?
A Notice 1444 is a letter from the IRS that each stimulus check recipient should have received at least within 15 days after receiving their stimulus check. Each letter includes confirmation that it sent you a stimulus check and the total amount you received. This letter is important for several reasons. First, it’s a physical confirmation of your check that you can keep for your records. And second, if you disagree with the sum you received, it could be the basis of a claim to argue what you’re owed.
For tax purposes, you can use your Notice 1444 to claim a Recovery Rebate Credit when you file your taxes. The Recovery Rebate Credit is for anyone who believes they did not receive the full stimulus amount they were entitled to.
Should you believe you are owed money you did not receive, you have to file taxes even if you are a non-filer per the IRS rules.
How do I know if I qualify for the Recovery Rebate Credit?
As mentioned above, you first must determine whether or not the amount you received in stimulus money was correct. If you find that the figure was inaccurate (for instance, perhaps your payment didn’t cover a child or another dependent you have listed), then you can claim the credit.
Other eligibility conditions include:
- Citizenship: You must have been a US citizen or US resident alien in 2020
- Independent: You cannot have been claimed as a dependent on someone else’s stimulus check
- Proof of Social Security number: You must have a valid Social Security number before your 2020 tax return
How might my 2020 taxes make me eligible for more stimulus money?
As it turns out, you might actually be eligible for more stimulus funds based on your 2020 taxes. That’s because the IRS is calculating the amount of the Recovery Rebate Credit based on your 2020 taxes, which are due by May 17.
How? If your 2020 taxes make you eligible but you did not receive the correct amount, you can claim the Recovery Rebate Credit. For example, let’s say you are single, your adjusted gross income is less than $75,000 and your stimulus payment was less than $1,200, you are eligible to claim the credit. And finally, remember that clerical errors can happen. If one of your stimulus checks was smaller than you imagined, the IRS may have failed to include one of your children or dependents.
Can a new baby make a difference in my stimulus payment?
Good news for new parents: if you had a baby in 2020, the IRS may not have had this child listed as a dependent on your tax forms when it released the first and second stimulus checks. That means you are eligible to claim your Recovery Rebate Credit.
Still iffy on whether or not you got the correct stimulus amount? Or wondering exactly how to recover owed stimulus funds? The best solution is to speak to a tax accountant who can walk you through the necessary paperwork, information, and steps to claim a Recovery Rebate Credit and enjoy the extra cash it affords. With their help, filing this year’s taxes will be easier than you think.