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Don’t worry, stimulus checks won’t affect your tax return

Woman enters stimulus on 1040, refund vanishes
Stimulus check
Posted at 1:00 PM, Feb 05, 2021
and last updated 2021-02-05 16:17:31-05

As Americans start preparing their taxes, some are getting a case of sticker shock.

When they enter the amount they received for last year's stimulus check, their refund goes down, leading many to wonder if we are now getting taxed on those $1,200 checks.

Missy Stenger heard time and again that the stimulus check was not taxable, and that she would not have to pay it back.

But when she started filing her taxes through a popular tax program, she was stunned by what popped up when she was done.

"It told me I owed over $1,000," Stenger said. "There is no way. There is no way."

Instead of her expected refund, she learned she owes money to the IRS.

Her teenage son gave her a suggestion:

"He said 'Mom, just play with it, take out the stimulus money and see what happens.' So I took it out like I didn't get it, and all of a sudden it said I will get back $2,700," Stenger said.

"And I said, 'Uh, why is it saying that?'"

Like so many other people, Stenger spent her stimulus check on essentials.

She was under the impression she would not have to pay it back.

IRS said you would not have to pay it back

So we turned to a CPA to get answers: Roy Mitchell of Kunimura-Mitchell Accountants.

"You are not being taxed on the stimulus," he told us. A report from AARP explains why even though you are not being taxed, it may seem that way.

But Mitchell admits it's confusing.

He says if you tell an online tax program you did not receive a stimulus check, it assumes you did not receive yours, and automatically gives you an extra $1,200 in your refund (or an extra $2,400 to a married couple).

This year's 1040 form even has a line on it, Line30, for people to claim the stimulus check they never received.

But that is now causing confusion, Mitchell says.

"If they have not received the $2,400, that will increase their refund by $2,400," Mitchell explained.

"But wait, they suddenly realize they did get the $2,400, so they enter that information on their tax forms. Then that takes it right back down to no refund," he said.

Don't lie. The IRS will know

Which raises the question: do you have to enter the amount you received? Yes, you do.

Popular tax programs like HRBlock, TurboTax, TaySlayer, etc. will ask you if you received a stimulus check.

Mitchell says don't lie: The IRS will know as soon as it processes your form that you are trying to double-dip, and you could face a penalty.

A recent blog post from the tax prep service TaxSlayer answers the most frequently asked questions about this.

Missy Stenger says she just wishes tax programs could be more clear upfront about what is happening.

"I didn't know what was going on," she said." I don't know if there is a glitch in the system somewhere."

But she says she will go ahead and enter the correct amount of stimulus she received.

Still not sure? Contact a local tax professional.

But the bottom line is you do not have to pay taxes on your stimulus, as much as that might appear to be the case.

As always, don't waste your money.

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NEW TAX LAW

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Increased Standard Deduction: The new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.

Increased Child Tax Credit: For, families with children the Child Tax Credit is doubled from $1,000 per child to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The bill also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000.

Personal and Dependent Exemptions: The bill eliminates the personal and dependent exemptions which were $4,050 for 2017 and increased to $4,150 in 2018. State and local taxes/Home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible. The bill also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.

Health Care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018. So for 2018, you can deduct medical expenses that are more than 7.5% of your adjusted gross income as opposed to the higher 10%.

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