Stimulus check question

[OceanSun]

Jurisdiction

US Federal Law

Our legislators are currently working on another stimulus package, currently with $1,400 to be given out. We'll see if it happens. On the past two, the income cutoff was $75,000, and stepped down from there, so I'm assuming they will keep those guidelines. Here's my question.

My normal income is below the $75,000 limit. However, I ended up on a furlough from work, that has extended into 2021. When I was given the furlough, it was for a set time, and I took a COVID withdrawal from my 401K to cover the full time of the furlough. Taking the withdrawal has put my income for 2020 to over $75,000, which would reduce the amount I would receive.

In the mean time, I won't be able to file my taxes for a bit, because the tax preparation firms (H&R Block, etc) are saying they don't have all of the guidance on COVID withdrawals yet. That means that if we get a stimulus check before that, they would go based on my 2019 taxes, and I would get the full amount. So what happens then when I file my 2020 taxes? If I end up having to pay it back, or it gets docked out of my 2021 tax return, I'm not as concerned with having to give the money up. I did budget for my time off. I just want to know what I might have to look forward to.

 

[army judge]

just want to know what I might have to look forward to.

Any responses forthcoming would be guesses or speculation.

I suggest you pose your queries to your elected congressional representative or your TWO US Senators.

 

[welkin]

Our legislators are currently working on another stimulus package, currently with $1,400 to be given out. We'll see if it happens. On the past two, the income cutoff was $75,000, and stepped down from there, so I'm assuming they will keep those guidelines. Here's my question.

My normal income is below the $75,000 limit. However, I ended up on a furlough from work, that has extended into 2021. When I was given the furlough, it was for a set time, and I took a COVID withdrawal from my 401K to cover the full time of the furlough. Taking the withdrawal has put my income for 2020 to over $75,000, which would reduce the amount I would receive.

In the mean time, I won't be able to file my taxes for a bit, because the tax preparation firms (H&R Block, etc) are saying they don't have all of the guidance on COVID withdrawals yet. That means that if we get a stimulus check before that, they would go based on my 2019 taxes, and I would get the full amount. So what happens then when I file my 2020 taxes? If I end up having to pay it back, or it gets docked out of my 2021 tax return, I'm not as concerned with having to give the money up. I did budget for my time off. I just want to know what I might have to look forward to.

The CARES ACT allows you to take up to $100K out of your retirement accounts without penalty. If your tax preparer doesn't know that perhaps you should find a different one.

Are you receiving unemployment benefits?

Coronavirus-related relief for retirement plans and IRAs questions and answers | Internal Revenue Service

 

[Zigner]

The CARES ACT allows you to take up to $100K out of your retirement accounts without penalty. If your tax preparer doesn't know that perhaps you should find a different one.

Are you receiving unemployment benefits?

Coronavirus-related relief for retirement plans and IRAs questions and answers | Internal Revenue Service

That's not the question(s) the OP has. One question the OP has is whether the "income" that will show from his withdrawal will lower the amount he'll receive from the next distribution. Another question is whether any stimulus payments sent based on prior year information that the OP doesn't actually end up qualifying for would need to be repaid.

 

[Tax Counsel]

So what happens then when I file my 2020 taxes?

The new stimulus payments won't affect your 2020 taxes. I can't tell you exactly how the new stimulus payments will work since the details of it, including the AGI limit for the credit, are still being negotiated. Only once the final bill is passed by both houses will we have the answers to that. However, it's a possibility that if you get more stimulus payment than you were entitled to get that you'll have to pay that back when you file your 2021 return.

 

[adjusterjack]

Did the IRS get back all the money it sent to dead people last year?

 

[OceanSun]

The new stimulus payments won't affect your 2020 taxes. ............. However, it's a possibility that if you get more stimulus payment than you were entitled to get that you'll have to pay that back when you file your 2021 return.

Thank You. I'm not worried how my stimulus would affect my taxes, but how the taxes would affect the stimulus, but dealing with it on the 2021 return makes sense. I guess to rephrase this, to be a bit more sure of things, if someone had sold a ton of stock in 2019 which put them over $75,000, but the first 2020 stimulus check of $1,200 was based on their 2018 tax returns, how did that get handled?

The CARES ACT allows you to take up to $100K out of your retirement accounts without penalty. If your tax preparer doesn't know that perhaps you should find a different one.

They are aware of that. They are saying that they haven't received guidance yet from the IRS on the form that is used (8915).

 

[army judge]

Did the IRS get back all the money it sent to dead people last year?

Many of them were too involved in the presidential election to respond to the IRS at the time.

After the election most of them went on extended vacations, still too busy to respond.

 

[Tax Counsel]

Thank You. I'm not worried how my stimulus would affect my taxes, but how the taxes would affect the stimulus, but dealing with it on the 2021 return makes sense. I guess to rephrase this, to be a bit more sure of things, if someone had sold a ton of stock in 2019 which put them over $75,000, but the first 2020 stimulus check of $1,200 was based on their 2018 tax returns, how did that get handled?

The stimulus payments are officially known as Economic Impact Payments (EIP). The IRS asked people to return EIP payments that they received but were not eligible to get, as in the example you provided above. However, those who received more than they should get are not required to repay the extra they received. (People who claimed payments to dead persons are a different story.) That was expressly stated for in the Acts that provided for the first and second EIPs.

And that rule is reflected in the worksheet used to figure the Recovery Rebate Credit (RRC), which is the credit that Congress created as the mechanism for the EIPs. The way it works is that the EIPs were advance payments of the 2020 RRC. If you got the full EIP you were entitled to get then there is no RRC to claim on your return and thus no impact on your return. But if you didn't get the full payment you were entitled to get, you can claim the RRC on your return to get the rest of the payment. You use a worksheet on page 58 of the Form 1040 instructions to compute the RRC to claim on your return. If you look at the worksheet carefully, you'll notice that line 16, in which you determine the difference between the first EIP payment (EIP 1) you received and the amount of RRC you were eligible to receive, it tells you that if the EIP 1 you received was more than the RRC you were actually entitled to get you do not have to repay the excess EIP 1 you received. Line 20 tells you the same thing for the second EIP payment (EIP 2).

So the question for this next round will be whether Congress will use the same rules and simply allow people who get an excess EIP 3 to keep it, or whether this time it will require that to be repaid. Until a final bill is passed, we won't know for sure the answer to that.

 

[Tax Counsel]

Did the IRS get back all the money it sent to dead people last year?

No, and it probably will never get all of it back. It will take time for the IRS to pursue those people who took the payments issued to dead people.