Individual Stimulus: How Will It Affect My 2020 Taxes?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act authorized two rounds of payments to individuals in 2020 and 2021. The first payment was a max of $1,200 ($2,400 married filing jointly) plus $500 for each qualifying child and the second was $600 ($1,200 married filing jointly) plus $600 for each qualifying child. While the amounts received by each individual were based on data from their most recent previously filed tax return, the qualifications are based on 2020 tax filing data and statuses but in advance.

This brings us to the big question: How will this affect my taxes, and more specifically, affect my 2020 taxes?

The payments were designed to be a tax credit against 2020 income taxes named the Recovery Rebate Credit. The payments eligible are based on your filing status in 2020 (single, married filing jointly, etc) and the number of children claimed for tax credit purposes in 2020.

What if an eligible taxpayer has a child in 2020? The taxpayer would not have received the additional stimulus for the child born in 2020 but it eligible to receive it. This additional stimulus will be factored into the 2020 tax return as an increase to tax refund or decrease of tax liability.

What if an eligible taxpayer for one reason or another never received one or both stimulus payments? Same answer. This additional stimulus will be factored into the 2020 tax return as an increase to tax refund or decrease of tax liability.

This new credit adds an additional layer of complexity to most 2020 individual tax returns to be filed, making this year one of the most important years to seek financial guidance from an external CPA.

If you are looking for a CPA or have any questions about accounting services, please contact me, Catherine Roe, at catherine@cowartroecpa.com or 504-252-0652. I would love to work with you!