Why stimulus checks may appear to impact your tax refund
Tax season is here and there are many things you need to be aware of when it comes to your money and taxes especially if you got stimulus money and unemployment funds.
Some taxpayers may be in for sticker shock. Despite stimulus money not being taxable, you may notice that if you got that money already, it may appear to reduce your tax refund.
CPA Aradhana Aggarwal who has an office in Durham says, "The system assumes that they have never received that, and the system puts that as a credit, and when they put that money back on the tax return, the system takes that credit off it. So, I can see how it gets confusing, but the money itself is not taxable."
Aggarwal said the online tax programs automatically assume you did not receive your stimulus money, if your income qualifies for it, and gives you the extra credit on your tax forms.
Lost a job or income? How to not lose access to key tax credits for 2020 taxes
However, if you did receive the stimulus money already, once you enter that amount on your tax forms, it will change your refund or what you owe.
"If they are getting a refund, the refund will get decreased. If they have the liability due then the liability will increase as the system has taken that credit back. The confusing part is when the system does it and then you tell the system you already received it, then the system is like OK, let me take it back," Aggarwal added.
If you don't file taxes, and didn't get your stimulus money, you can file what's know as a Recovery Rebate Credit.
Haven't received your stimulus check? What you need to know about the Recovery Rebate Credit
She said the stimulus money will not count toward income, affect benefits, or compensation for Social Security or the Veteran's Administration.
For those of you who had your income change in 2020, you could be owed stimulus money.
"If 2020 income is less than 2019 and they should have received more stimulus money than they actually received, then they should receive it in their 2020 tax return," Aggarwal said.
If you adopted or had a baby in 2020, you also qualify for that additional dependent stimulus money.
When it comes to taxes and those who collected unemployment, those funds are 100% taxable when it comes to federal and state taxes in North Carolina.
If you do not have any withholdings while collecting unemployment, you should add that so you are not stuck with owing a large amount of taxes for your 2021 taxes. When it comes to your 2020 taxes, if you will struggle to pay the amount you owe to the IRS there are options.
"We can put them on a payment plan and whatever they can afford definitely they can pay that amount on a monthly basis," Aggarwal said.
While we are talking about 2020 taxes, the harsh reality there are still many people waiting for the IRS to process their 2019 returns as the IRS is still working through its backlog because of the COVID pandemic.
The key to filing your 2020 taxes is to be organized. If you're using a CPA or tax preparer, be aware of their fees and costs upfront. Also, make sure they're qualified to do the job as you're trusting them with very personal information.
If you're getting a refund, and need the money now and agree to a refund anticipation loan from the tax preparation company you use, just know you are paying for that service -- it's not free. If you haven't received stimulus money from 2020, make sure you file for a Refund Recovery Credit.
There is talk of a third stimulus payment, it's so important to get your taxes done sooner than later. Another tip is to file electronically rather than by mail as the IRS is processing those claims more quickly than those received by mail because of COVID-19 concerns.
