One of the more confusing things for this particular tax season is reporting your economic stimulus payments on your tax return.
Last April, checks were mailed or deposited directly into taxpayer bank accounts. The information that was used to generate those payments were based on information that was available to the IRS at the time, usually 2018 income tax returns.
If you had children, got married, got divorced, or your income moved you either in or our of income eligibility, you may get more or have to return some on your 2020 income tax returns.
The form that was used to report your initial payment was called Form 1444 and is below.
So, is this form necessary to prepare your income tax return? No, it is the amount that is necessary.
The payment from last April was called the Economic Impact payment. It was based on income, and number of dependents at a certain age. But last April, most people had not yet filed their 2019 income tax returns, so the most current information that was used to calculate and send those payments was based on 2018 income tax data. So if between 2018 and 2019 your circumstances changed such that you were not eligible for the payments, well a recent decision indicates that it will not have to be repaid. But if you did not get the payments, and were eligible, you can apply for it on your 2020 income tax returns.
In late December, it was decided to generate a second stimulus check, "The Recovery Rebate Check" (RRC), and again it was broadly based on income and number of dependents under 17 years old. Congress and the IRS wanted to avoid the same problems as the first check and using old data, so the checks were generated in early January 2021 and are reconciled with 2020 income tax returns.
What changed between 2018, 2019 and 2020 data that would change your EIP and RRC payments?
Did you have a new baby? Did you get married? Did you file under your parents as a dependent in 2018 and then independent in 2019? Did you get a divorce? Did you experience a custody change? Did you adopt? Do you have a Foster Child? Did your EIP payment get deposited into an expired debit card typically used for your refunds? Is your income in 2018 the same as 2019 and 2020? Did you throw away your EIP payment? The paper checks did not look at all like checks from the IRS.
It is very important that you tell your CPA what the amounts for BOTH of your checks were, so that if you were entitled to more, you can apply for it.
The bottom line is that preparing 2020 income tax returns requires taking a look back and a look forward. There are a lot of other nuances related to Covid-19 and the preparation of your 2020 income tax returns.
Doug Zandstra CPA, CFE, EA
Certified Public Accountant
Certified Fraud Examiner
Enrolled Agent
29 Pearl St NW, Ste 225
Grand Rapids, MI 49503
616 970 3000
dougzandstra.com
email dougzandstra@gmail.com
