Stimulus check and taxes

[wallygator69]

Howdy,


Per a Dave Ramsey article:


Stimulus Checks

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans shortly after the pandemic shut most of the country down.10
The good news is your stimulus check will not count as taxable income. Instead, it’s being treated like a refundable tax credit for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.


We are trying to hit $23,000 MAGI for ACA. We typically do not get a refund or if we do It's $100. We got the $2400. I don't understand how it will effect anything...


Thanks as always,


Wally

 

[gauss]

Stimulus will not effect ACA MAGI whether it is paid upfront (and not shown at all on the tax return) or taken at tax time via the refundable credit.

The reason for the second part is that the Modified AGI is calculated before any refundable credits are applied.

-gauss

 

[Brat]

I don't understand this. The stimulus checks don't count as taxable income, ok.

Tax credit How does that work?

I paid a chunk of change (more than our total stimulus checks) when I converted $ from tIRA to Roth. My initial spin on our 2020 tax return is that the taxes paid on the conversion were enough to meet our income tax obligation for 2020. Am I over withheld?

 

[audreyh1]

I don't understand this. The stimulus checks don't count as taxable income, ok.

Tax credit How does that work?

It’s like a spontaneous tax refund to anyone who meets the income requirements.

 

[Brat]

I searched the 2020 H&R Block tax return software and find no place to enter the stimulus money we received.

 

[RunningBum]

It sounds like the credit will show up on schedule 3 part II (refundable credits), which comes over to 1040 after AGI/MAGI is calculated. After your tax is calculated too.

Somewhere in schedule 3 or 1040 you'll be asked if you already got your check. If you did, it gets subtracted back out. So you got that check with no net impact to your taxes.

If you didn't get the check yet but qualify, you get the refundable credit in Schedule 3 part II, and it does not get subtracted out. So you it's subtracted from any tax owed, or added to your refund.

I could fire up my 2020 Turbo Tax but why do that when I get make a guess?

 

[PaunchyPirate]

I searched the 2020 H&R Block tax return software and find no place to enter the stimulus money we received.

My guess is that the IRS hasn’t finalized how this will handled in the forms yet. So it has not been added to the software yet. Up until the last few weeks, there was an outside chance of an additional stimulus to deal with. I suspect it will be functionality added in later release updates.

So don’t file yet!

 

[RunningBum]

I paid a chunk of change (more than our total stimulus checks) when I converted $ from tIRA to Roth. My initial spin on our 2020 tax return is that the taxes paid on the conversion were enough to meet our income tax obligation for 2020. Am I over withheld?

Nope, if you got the stimulus check it should have a net 0 effect on your taxes.

I searched the 2020 H&R Block tax return software and find no place to enter the stimulus money we received.

It may come in a later update.

 

[gauss]

It shows up on the second page of form 1040. I believe that it is called the 'Recovery Rebate Credit' and listed on line 30 of form 1040.

This is only used in cases where you did not receive the proper amount of stimulus already and additional is owed to you - (ie a child was born in your family in 2020).

-gauss

 

[audreyh1]

Or you were paid less than the max based on 2019 income? But 2020 income is below the threshold.

 

[jazz4cash]

We didn’t get the full 2400. I’m trying to defer distribution income from 2020 to 2021 to get the rest of the stimulus as credit ion our return. Silly I guess since we were not really impacted and don’t need it as much as others might.

 

[Montecfo]

We didn’t get the full 2400. I’m trying to defer distribution income from 2020 to 2021 to get the rest of the stimulus as credit ion our return. Silly I guess since we were not really impacted and don’t need it as much as others might.

But failing to claim yours does not cause it to go to others. My tack is to get it and give to my favorite charities.

 

[Bruno]

It sounds like the credit will show up on schedule 3 part II (refundable credits), which comes over to 1040 after AGI/MAGI is calculated. After your tax is calculated too.

Somewhere in schedule 3 or 1040 you'll be asked if you already got your check. If you did, it gets subtracted back out. So you got that check with no net impact to your taxes.

If you didn't get the check yet but qualify, you get the refundable credit in Schedule 3 part II, and it does not get subtracted out. So you it's subtracted from any tax owed, or added to your refund.

I could fire up my 2020 Turbo Tax but why do that when I get make a guess?

We made to much money in 2019 but I retired 9/2019 but didn't get 2020 Stimulus check or my 19 year old daughter who is on taxes for the deduction She is in college. Are you saying that we should get a credit when we fill out my 1040 2020 taxes?

Thanks
Bruno

 

[SecondCor521]

We made to much money in 2019 but I retired 9/2019 but didn't get 2020 Stimulus check or my 19 year old daughter who is on taxes for the deduction She is in college. Are you saying that we should get a credit when we fill out my 1040 2020 taxes?

Thanks
Bruno

Not RunningBum, but the answer to your question is:

1. Yes for you if your 2020 AGI is low enough for your filing status (under $150K for MFJ). There will be a place to figure out what credit you should have gotten based on your 2020 AGI, then a place to subtract the credit you got ($0 in your case), and then the extra (the full credit you are entitled to in your case) will be refunded back to you (or reduce the amount you owe, as the case may be).

2. No for your daughter if you claimed her as a dependent in 2019 and claim her as a dependent in 2020 and she's over 17. If you claimed her in 2019 but she is not your tax dependent in 2020 (perhaps she is the right age to be too old to be claimed in 2020 - 23/24 or so), then she'd do the same exercise described above, and assuming she's single and her AGI is under $75K she'd get the whole credit with her 2020 tax refund (or it would reduce the amount she owed, as the case may be).

 

[CRLLS]

On a related question. Since I don't have my TurboTax yet, I can't check. Will the stimulus somehow get added in to AGI for qualifying ACA or IRMAA?

 

[RunningBum]

On a related question. Since I don't have my TurboTax yet, I can't check. Will the stimulus somehow get added in to AGI for qualifying ACA or IRMAA?

That question was asked in post 1 and answered in post 2. No.

 

[CRLLS]

That question was asked in post 1 and answered in post 2. No.

Thanks. It does answer the ACA side, sorta. Post 1 referred to the Dave Ramsey article where the stimulus check would not count as taxable income. OP asked about how the stimulus check affecting ACA. Post 2 was an reply about how it would affect ACA subsidy with no actual reference made. Without a reference, I take that as opinion which may, or may not, be factual. Neither discuss IRMAA. And since both use some version of MAGI, I would hate to be over the limit for IRMAA surcharges when maximizing my Roth conversion. I did try to find out how IRMAA's MAGI relates to AGI but got caught up in Medicare act referencing other paragraphs and such. I thought somebody had already been thru TT's software.

 

[SecondCor521]

Thanks. It does answer the ACA side, sorta. Post 1 referred to the Dave Ramsey article where the stimulus check would not count as taxable income. OP asked about how the stimulus check affecting ACA. Post 2 was an reply about how it would affect ACA subsidy with no actual reference made. Without a reference, I take that as opinion which may, or may not, be factual. Neither discuss IRMAA. And since both use some version of MAGI, I would hate to be over the limit for IRMAA surcharges when maximizing my Roth conversion. I did try to find out how IRMAA's MAGI relates to AGI but got caught up in Medicare act referencing other paragraphs and such. I thought somebody had already been thru TT's software.

The stimulus check was an advance on a refundable tax credit created by the CARES Act. As such, it is not part of AGI (nor MAGI) for any purpose, certainly not for ACA nor for IRMAA surcharge purposes.

For citation of this, I'd point you to Section 2201 of the CARES Act text, which states in parts:

"(a) IN GENERAL.—In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A for the first taxable year beginning in 2020 an amount equal to the sum of—" (goes on to list the amounts based on filing status)

and

"(1) IN GENERAL.—Subject to paragraph (5), each individual who was an eligible individual for such individual’s first taxable year beginning in 2019 shall be treated as having made a payment against the tax imposed by chapter 1 for such taxable year in an amount equal to the advance refund amount for such taxable year."

You can read the actual text of the bill here: https://www.documentcloud.org/documents/6819239-FINAL-FINAL-CARES-ACT.html. The above quotes can be found around page 144 and 146-147.

So it's a credit and the government is treating it as though you made an estimated tax payment in the amount of your credit. You'll get that pseudo-estimated tax payment back either via the advanced credit payment earlier this year or with your tax return.

Since it's a refund of a tax payment (one you didn't make, but still), it is not considered income, therefore is not part of AGI, therefore not part of MAGI.

 

[Gumby]

IRS guidance on how to claim your stimulus credit if you either did not receive a check or received less than $1200. https://www.irs.gov/newsroom/recovery-rebate-credit

It is my understanding this will also apply to the new stimulus in the bill that was signed last night by the President.

 

[sengsational]

My team of lawyers is working on it. Or I presume they are. At the offices of H&R Block

 

[scrabbler1]

My 2019 income was too high to be eligible for a stimulus check. However, I still received one earlier this year for $1,200 because, I assume, it was based on my 2018 income which was low enough to qualify for it.


My 2020 income will also be low enough to qualify for the latest $600 check. However, because they are basing it on my still-too-high 2019 income, I will have to claim it as a credit on my 2020 tax return. Is this correct? I can use this $600 to offset any amount I would owe on my 2020 tax return, even turn what I owe if less than $600 into a refund of whatever amount is left over. Is this correct, too?

 

[PatrickA5]

My 2019 income was too high to be eligible for a stimulus check. However, I still received one earlier this year for $1,200 because, I assume, it was based on my 2018 income which was low enough to qualify for it.


My 2020 income will also be low enough to qualify for the latest $600 check. However, because they are basing it on my still-too-high 2019 income, I will have to claim it as a credit on my 2020 tax return. Is this correct? I can use this $600 to offset any amount I would owe on my 2020 tax return, even turn what I owe if less than $600 into a refund of whatever amount is left over. Is this correct, too?

I believe you understand correctly.

I should get a partial credit on my 2020 taxes since I didn't get the full payment earlier this year and likely won't get the full $600 of the next stimulus check.

 

[cathy63]

My 2019 income was too high to be eligible for a stimulus check. However, I still received one earlier this year for $1,200 because, I assume, it was based on my 2018 income which was low enough to qualify for it.

My 2020 income will also be low enough to qualify for the latest $600 check. However, because they are basing it on my still-too-high 2019 income, I will have to claim it as a credit on my 2020 tax return. Is this correct?

I can use this $600 to offset any amount I would owe on my 2020 tax return, even turn what I owe if less than $600 into a refund of whatever amount is left over. Is this correct, too?

I don't think anybody knows yet. I took a quick glance at the text of the bill and it looks to me like it says it's a tax credit for 2020, just like the previous stimulus. The problem is, the IRS already issued the "final" 1040 and instructions for the 2020 tax year and there's a way to reconcile the original recovery rebate, but obviously this second one is not included. Will they have to amend the form and instructions? Will every software vendor have to rework their calcs for the 1040? Will the IRS be able to accept returns staring in late January as usual, or will they have to wait until the rebate checks are completely distributed so that everybody will know what the heck to put on their returns?

Stay tuned. I'm sure answers will be coming in the next 2 to 3 weeks.

 

[scrabbler1]

I don't think anybody knows yet. I took a quick glance at the text of the bill and it looks to me like it says it's a tax credit for 2020, just like the previous stimulus. The problem is, the IRS already issued the "final" 1040 and instructions for the 2020 tax year and there's a way to reconcile the original recovery rebate, but obviously this second one is not included. Will they have to amend the form and instructions? Will every software vendor have to rework their calcs for the 1040? Will the IRS be able to accept returns staring in late January as usual, or will they have to wait until the rebate checks are completely distributed so that everybody will know what the heck to put on their returns?

Stay tuned. I'm sure answers will be coming in the next 2 to 3 weeks.

Checking the IRS website, the 1040 form for 2020 has been finalized. But the instructions have not been finalized yet, they are still in draft form. The instructions include a worksheet (page 57) for determining the credit if one doesn't receive the full amount. So, that worksheet could, in theory, be changed to allow for both credits even though it is set up now for only the first one.

I agree that a change at this point could case some havoc for tax programs already put out there. And your other questions are good ones, too.

 

[cathy63]

Oh, I didn't realize the instructions were still in draft. Good catch!