ConsumerAffairs has already covered exactly how much consumers can expect from the CARES ACT stimulus bill and when those checks should arrive, but there are still lots of questions coming in about how the money will be regarded by the Internal Revenue Service (IRS) come tax time.
To help consumers plan accordingly, ConsumerAffairs has put together a list of FAQs to get help clear up any confusion.
Is the money tax-free?
Essentially yes, but there appears to be one small wrinkle that may impact a handful of taxpayers.
“If the tax credit amount you qualify based on 2020 (adjusted gross income -- see below) is less than what you qualify for based on your 2019 tax return, it does not have to be paid back,” explains eFile. “On the other hand, if a taxpayer's 2020 (adjusted gross income) is substantially higher than the 2018 or 2019 adjusted gross income, the taxpayer might have to pay back some or all of the money after April 15, 2021. This pay back might only apply to a very small number of taxpayers.”
Do I have to apply or file a tax return to get the CARES ACT stimulus money?
No, you do not have to apply, but you must have either a 2018 or 2019 IRS Income Tax Return on record with the IRS.
According to eFile, eligibility for the stimulus money depends on Adjusted Gross Income (AGI) and not “taxable income.” Note: On IRS form 1040, the amount you receive goes on line 8(b), the field for AGI.
“We do not know which return will be considered, the one with the lower or higher AGI or the most recent return over prior returns,” eFile says. “If your 2019 AGI or Adjusted Gross income was very low, you are encouraged to file a 2019 tax return ... even if you don't owe taxes to also take advantage of the refundable Earned Income Tax Credit - EITC - and Child Tax Credit and the COVID-19 Recovery Rebate.”
Will this affect any refund I was expecting to get from my 2019 tax return?
Nope. Your 2019 refund check won’t be affected in any way by the stimulus check.
I haven’t filed a 2018 or 2019 tax return. What do I do?
If you haven’t filed a tax return, all is not lost. The bill allows the Treasury Department to use the information on your 2019 Form SSA-1099, Social Security Benefit Statement, Form RRB-1099, Social Security Equivalent Benefit Statement.
I owe the IRS some money. Are they still going to send me the stimulus check?
Normally, the IRS would deduct any refund due from a tax amount owed, but if everything goes as planned in this situation, anyone who owes money to the IRS is not SUPPOSED to have anything withheld.
I’m not used to filing a refundable tax credit. Can you explain what that is?
A refundable tax credit is simply a credit which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe. A perfect example of a refundable tax credit some consumers may remember is the first-time homebuyer tax credit when they purchased their first home.
I’ve got a question that’s not answered here. Is there someone I can talk to?
There is. The IRS not only has a constantly-updated web page devoted to taxes as they relate to the coronavirus, but the agency also has a phone number taxpayers can call to get other questions answered: 1-800-829-1040, open 7 a.m. to 7 p.m. local time. A quick heads-up: As you can imagine, the agency is pretty busy, but it’s dedicated to making a consumer’s life as easy as possible.
While the stimulus money may help some consumers cover day-to-day expenses that have become more problematic during the coronavirus crisis, there are still many people who may have trouble with taxes this year.