Various stimulus payments during the COVID-19 pandemic have been designed to provide relief for those struggling during job loss and lock downs. The coronavirus has affected every aspect of life, and that includes income taxes.
The federal government has made three rounds of stimulus payments to individuals, even to those that typically don’t file or aren’t required to file. The distribution of those payments has encountered a number of problems. Individuals may have received one, but not the other payment, but that doesn’t mean that they won’t receive the second and third.
Others received less than the full amount and in many cases, the payments were confiscated for child support and similar court-ordered payments or the full amount wasn’t disbursed. For those individuals, they may be eligible to claim a Recovery Rebate Credit, but to do so they need to file a tax return.
The good news is that stimulus checks aren’t taxable. Individuals must pay taxes on income, but stimulus checks aren’t really income for tax purposes. It’s classified as an advance payment on a tax credit and a tax credit isn’t taxable either. Pay careful attention to the new tax forms, as they can save taxpayers money if they:
- Had a baby
- Were married and one spouse doesn’t have a Social Security number
- Income dropped in 2020
- Are a recent college graduate
- Didn’t receive a full round of stimulus checks
- Didn’t file a 2018 or 2019 tax return
The stimulus payments were first made to people that filed tax returns by e-file. Paper checks were then dispersed to those that filed paper copies of their return. It led to delays, shorted amounts, and no check at all, since distribution was based on 2019 and 2020 tax returns. That means individuals will be able to claim the amount they missed as a tax credit on their taxes.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!