fbpx

Economic Impact Payments

Economic Impact Payments

The IRS and Treasury Department sent two rounds of economic impact payments to individuals in 2020 as part of broader coronavirus relief packages. The payments, sometimes called stimulus payments, were sent through direct deposit, paper check, or prepaid debit cards. Technically, the payments are tax credits advanced to individuals based on their 2018 or 2019 adjusted gross income (AGI). For the filing season now underway, the IRS updated the 2020 Form 1040 to finalize payments in case individuals are eligible for an additional amount.

Individuals may receive an additional payment (in the form of a refundable tax credit on their 2020 individual income tax return) in one of two ways. First, filers who did not receive either of the payments due to processing delays or errors may claim it on their return. Second, filers likely will benefit by using 2020 AGI when calculating any credit they are owed. If a filer received a partial payment (or no payment at all) because of a 2018 or 2019 AGI above the phaseout threshold, using a lower 2020 AGI would make them eligible for an additional payment.

Filers who did not receive a payment for an eligible dependent may also receive the credit on their tax return. (Additionally, filers who originally were not eligible for a CARES Act payment because they lacked a Social Security number may be eligible if they are part of an eligible mixed-status family.)

Adjustments are only made in the taxpayers’ favor, so taxpayers will not see any increase in their tax liability related to the payments. Because the payments are tax credits, they are not taxable income.

Adjustments for the latest round of $1,400 economic impact payments through the ARPA will be made in the 2022 tax filing season.