Filing Your 2020 Taxes With Stimulus ChecksPublished:
What You Need to Know About Stimulus Checks & Your 2020 Taxes
In response to the COVID-19 crisis, the federal government has passed three major stimulus bills over the past year. Each stimulus package has included a round of stimulus checks for individuals, which are distributed as direct payments (either via Direct Deposit, paper check, or prepaid debit card). All three stimulus bills also included a variety of new tax breaks and temporary changes to tax laws.
This article explains how the federal COVID-relief legislation and stimulus checks may impact your 2020 taxes when you are preparing to file your income tax return this year.
Stimulus Checks: 3 Total (So Far)
Since the start of the Coronavirus pandemic, there have been three large-scale stimulus bills that were signed into law:
- The Coronavirus Aid, Relief, and Economic Security Act (a.k.a. CARES Act) – signed into law by President Trump on March 27, 2020
- The COVID-Related Tax Relief Act of 2020 – signed into law by President Trump on December 27, 2020
- The American Rescue Plan Act (ARPA) of 2021 – signed into law by President Biden on March 11, 2021
The CARES Act created the first round of stimulus checks, worth up to $1,200 per eligible individual, plus an additional $500 for each qualified dependent child. The COVID-Related Tax Relief Act authorized the second round of stimulus checks, worth up to $600 per individual with an additional $600 for each qualified dependent child. The American Rescue Plan authorized the third round of stimulus checks, which are worth up to $1,400 per eligible individual, plus an extra $1,400 for each dependent.
These stimulus checks are not considered taxable by the IRS and do not need to be included in your income or reported on your tax return. Furthermore, you will still qualify for a stimulus check even if you owe back taxes to the IRS (as long as you meet the income threshold). In other words, your current tax situation does not affect your eligibility for a stimulus payment.
The Recovery Rebate Credit
The Recovery Rebate Credit is a new federal tax credit that was created by the first stimulus bill (the CARES Act) in March of 2020. Technically, your stimulus check is considered to be an advance payment of the Recovery Rebate Credit. Therefore, if you do not receive a stimulus check even though you’re eligible for it, you can claim the Recovery Rebate Credit on your 2020 federal income tax return (Form 1040 or Form 1040-SR) in order to receive the money.
2020 Federal Income Tax Returns: Form 1040 or Form 1040-SR
Federal tax return forms for individuals have undergone a number of sweeping changes over the past several years. Between 2017 and 2018, the original income tax return (Form 1040) and its variations (Form 1040A, Form 1040-EZ, etc.) were overhauled, consolidated, and replaced with a much shorter form. More adjustments occurred in 2019, and now we essentially have two types of income tax return forms – Form 1040 (designed to be used by most individuals) and Form 1040-SR (designed specifically for senior citizens).
If you were eligible to receive a stimulus check but you didn’t get it, you can claim the new Recovery Rebate Credit on your 2020 federal income tax return. See below for information about other new tax breaks for COVID-relief.
Extended Tax Deadlines
Tax Day – when individual income tax returns and payments are due – usually falls on April 15th each year. However, the IRS recently announced that this deadline is postponed to Monday May 17, 2021 for all individual taxpayers. This extension includes the filing of your 2020 tax return as well as payment of your 2020 income taxes.
New COVID-Related Tax Breaks
Aside from the Recovery Rebate Credit, there are several new tax relief programs that have been created by recent stimulus legislation. Keep in mind, however, that most of these changes are temporary because they are meant to help struggling households during the COVID-19 pandemic.
The Child Tax Credit can now be claimed by anyone who has a qualified dependent child (under 17 years of age) no matter how much income you earn. The amount you can claim has increased to $3,600 for each young child (under 6 years old) and $3,000 for each older child (between age 6 and 17). The Child Tax Credit is also now fully refundable for low-income families, which means it can result in a tax refund if it brings your tax liability below zero.
Other COVID-related changes to tax programs include the Child and Dependent Care Expenses Tax Credit – which has been increased to $8,000 for households with one child/dependent and $16,000 for households with two or more children/dependents – and some new employer tax breaks for sick and family leave.