Local tax experts are being honest about the $1,200 stimulus checks the federal government authorized for individuals at the end of March in the wake of COVID-19's affects on people's incomes.
“What we don't like is having to say, 'To the best of my knowledge,' and 'We don't know ...'" said Martha Stenglein, with Nisswa Tax Service. “And most of us in this office don't like to tell our clients that. They call us because we should know, and it would be nice if we did. I think it was put together so quickly that there's still a lot of questions that aren't answered.”
At Michael Clayton, CPA, in Pine River, the sentiment is similar; however, tax preparers and accountants at both firms do have good news to allay concerns.
“From what I have read, it will not be taxable,” Clayton said.
“As far as if it's going to be taxed, our understanding is no, it's not,” said Stenglein.
The money is free and clear and belongs to the recipient.
“My understanding is it does not have to be paid back and it is not something that will be deducted from your tax return down the road,” Clayton said.
Some have characterized the check as an advance on next year's income taxes; however, it is not being treated like credits and many professionals are uncertain exactly what the mechanism for applying the stimulus will be on paper come tax time. For example, it is not like a tax credit because the recipient does not need a taxable income to receive it.
For this reason, those receiving Social Security still qualify for it.
“It doesn't have anything to do with their tax return other than having to file a tax return or go online to file a minimal tax return if you don't have to file,” Clayton said. “If you receive Social Security or military disability, that should be automatic and they don't have to do anything.”
Filing a tax return or filing for minimal taxes gives the IRS a record of where to distribute the stimulus and how much each person qualifies for. For individuals who earned less than $75,000, the stimulus check will be $1,200 plus an additional $500 for each dependent child.
“The adjusted gross income for a single person is $75,000, for a married couple it is $150,000,” said Stenglein.
The check is an advance on 2020, but it uses tax information from 2019 to determine how much each person qualifies for. Because income could change between 2019 and 2020, those who made over the limit in 2019 may get more with their 2020 tax return.
“If someone in 2019 sold something and their income went up unusually and then it went back down that year back below the guidelines, you could get it in 2020, but then it would be part of your tax returns,” Clayton said.
That does not mean, however, that those who qualify for the stimulus based on their 2019 taxes would have to pay back the stimulus if their income increases for 2020.
“What I understand is, if they aren't qualified in 2019 because their income is too high, but in 2020 they might be, they still might be eligible for it in 2020; and also if they were qualified in 2019 but they aren't in 2020, they don't have to pay it back,” Stenglein said. “That's my understanding.”
There are some difficulties with the stimulus check, however. Some college students may not get a stimulus check, and their parents likely won't get any additional stimulus either.
“There is not a credit for (the parents) if the child is older than 17, and if the college kid is claimed by their parent they aren't eligible either,” Stenglein said. “So if it's a person going to college and claiming themselves, they'll get it.”
Furthermore, if a taxpayer used a tax preparer who allowed them a rapid loan for immediate access to their most recent tax return, then they should contact their tax preparer because the IRS is using that tax record to determine where to send the stimulus. Those who used a rapid loan do not have their own direct deposit accounts on record with the IRS for that tax season. Instead, the IRS may have a record of the company providing the rapid loan service.
Stenglein said those services aren't very common locally, but those who may have used such a service should immediately consult their tax preparer.
Travis Grimler may be reached at 218-855-5853 or firstname.lastname@example.org. Follow him on Facebook and on Twitter at www.twitter.com/@PEJ_Travis.