As COVID-19 continues to spread throughout the United States, its impact on the health, jobs, and livelihoods of millions can’t be understated. Beyond its very real human toll, coronavirus has been responsible for millions of job losses and countless challenging new financial situations.
The IRS and the federal government have been working to create solutions and treatments to help Americans weather the storm. But as we know well, uncertainty usually clouds nearly every new tax law. What will the recent CARES Act and other economic recovery policies mean for your 2020 tax return?
We’re tax preparation experts, and we’ve been following the news carefully over the past month to better understand what these policies mean for our clients. We’ve compiled a few of the most common questions we’ve gotten about coronavirus and your tax return. And we’ll continue to update this article as new information rolls in.
Tax Day in 2020 originally was set for April 15, but the IRS extended the tax filing and payment deadline to July 15, 2020. This could be a huge help to anyone who owed taxes or had yet to file their tax return before COVID-19 started the U.S. spinning. To file for this deadline, you won’t need to file for an extension.
However, you should keep a couple things in mind if you previously planned to file by April 15. One point of focus we’d like to draw your attention towards is scheduled tax payments. The IRS allows taxpayers to make payments electronically, by phone, or through a mobile device. And often times these payments can be scheduled up to 365 days in advance.
If you had scheduled a tax payment to go out on April 15 but you’re in a financial bind and may need the money, you can reschedule your tax payment through the IRS. Your financial situation is unique to you, but if you can pay now, it will save you the hassle of trying to pay at the new deadline if the economy continues to struggle.
To combat a slowing and sputtering economy, the federal government has settled on sending stimulus payments to each American. In theory, these checks are intended to help people weather the financial storm that has driven high unemployment numbers and cratered the stock market.
Unfortunately, there has been a lot of mixed messaging surrounding the payments. Here’s what you need to know about the coronavirus stimulus payments.
Like with most tax matters, the COVID stimulus payments vary depending on your filing status. Individuals can expect a $1,200 payment, while couples will receive $2,400. Tax filers with qualifying dependent children under the age of 17 will also receive $500 for each child.
Your eligibility for the payment is determined by your income. If your AGI, or adjusted gross income, is at or higher than $99,000, you won’t receive a stimulus check. If you file jointly, that total doubles to $198,000. And if you have eligible children, your phaseout will be higher.
Another burning question has been whether seniors who don’t file tax returns, typically because their only income is Social Security, are eligible for a stimulus check. They are!
The stimulus check you receive is technically considered an advance tax credit. Tax credits come in two different flavors: refundable and nonrefundable. A nonrefundable tax credit lowers your tax bill but won’t give you a refund, while a refundable tax credit will.
These stimulus payments are fully refundable tax credits. You’ll claim the tax credit on your 2020 taxes, but you’ll receive the money in advance. So while you won’t be able to then claim the credit when it’s time to file your 2020 taxes, you’ll already have received the money.
It’s best not to conflate this with an “advance refund,” only because that implies the IRS is reducing or eliminating your refund next year. That is to say, your stimulus payment won’t impact your tax refund, and it won’t be considered taxable income.
The IRS determines your payment based on your income. So, what happens if your income changes?
Most importantly, you’ll never owe the IRS more money once you’ve received your payment. For instance, if your income increases to a level where you might not have received the full $1,200, you won’t then be required to pay the IRS whatever that difference may be. On the other hand, if your income decreases to a point where you would have otherwise received a larger stimulus payment, you will be eligible for whatever credit you weren’t sent the first time around.
Whether you’re struggling with a job loss or simply focused on keeping your loved ones safe, you deserve whatever information you need to make the best decisions for you in the coming months. While the process of preparing your taxes remains the same, we understand that everything just feels a little more frightening right now. In short, that’s why we’re here: To help you get the information you need about your tax return in a time of COVID-19.
The IRS has compiled all its tax relief measures in one place: IRS.gov. If you have any more questions about your tax return or the new policies, we’re always here. Reach out today.
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