Tax Planning During the COVID-19 Pandemic
Looking back on the events in 2020 thus far, it is difficult to imagine when our “normal” lives will come back. While analysts can try to predict that timeline, there is no time like the present to think about your 2020 tax position.
About the Stimulus Checks
As part of the measures taken by the federal government, a round of stimulus checks were given to all non-dependent tax filers based on their 2019 tax status. The checks varied depending on each filers’ 2019 tax status:
Some filers may have noticed a reduced payment. The CARES Act reduced the stimulus payment depending on the tax filer’s 2019 adjusted gross income:
These payments are excluded from the gross income on your 2020 return. It will not reduce your refund or increase the amount you owe when you file your 2020 tax return.
If my situation in 2020 changes, do I have to return part of my stimulus money?
As an example, let’s say you claimed a qualifying child of the age 16 on your 2019 tax return. You collected the additional $500 stimulus relief for that child, but the child turned 17 in 2020. Do you have to give the money back when you file your 2020 return? No, there is no provision that requires individuals that qualified for any amount of the stimulus relief to return any part of the relief if their 2020 tax status materially changes.
Tax filers who become eligible to receive the relief checks in 2020 are eligible to claim the relief amount credit on their 2020 tax return. For example, a college student in their final year of school was claimed as a dependent on their parents return. This student graduated in 2019, so in 2020 they can no longer be claimed as a dependent on their parents’ return. That student can claim a $1200 credit when they file their 2020 return in 2021.
We will continue to monitor additional stimulus packages that the federal government releases and analyze their tax impact for our clients.
Do not hesitate to reach out to one of our many qualified tax professionals for further guidance on tax planning during the COVID-19 pandemic.