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5 Commonly Asked Stimulus Tax Questions

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The COVID-19 outbreak has hurt the U.S. economy to a degree beyond what many of us could have imagined. Thankfully, the $2 trillion CARES Act has already been providing relief in the form of $1,200 stimulus payments that started hitting Americans’ bank accounts in April. But there’s still a lot of confusion surrounding those stimulus checks, so if you’re in the dark, here’s some information that may help clear things up.

Is my stimulus money taxable?

No. The purpose of those $1,200 stimulus checks is to provide immediate relief for struggling Americans who can’t make ends meet without them. The IRS will not be withholding a portion of those checks for tax purposes, nor will it ask you to pay taxes on your stimulus money after you receive it.

Will my stimulus check bump me into a higher tax bracket?

The higher your tax bracket, the more tax you pay on your highest dollar of earnings. It’s possible for a $1,200 bonus at work to push you from one tax bracket into another, or for $1,200 in investment gains to do the same thing. Your stimulus payment, however, does not count as taxable income, and, as such, cannot push you into a higher tax bracket.

Will I get a stimulus if I owe back taxes?

Though the IRS is allowed to garnish your wages if you fail to make good on a tax debt you owe, the agency will not be garnishing stimulus money to cover unpaid taxes. That said, if you owe child support, you may have your stimulus garnished. And if a creditor has obtained a court order compelling your bank to freeze your assets, you may not be able to get your stimulus check, either.

What tax return is my stimulus based on?

Eligibility for a stimulus payment is based on the adjusted gross income you’ve reported for either 2018 or 2019. A lot of people haven’t yet filed their 2019 tax returns, since the deadline to do so was pushed back until July 15 due to the ongoing crisis. If your income was lower in 2019 than it was in 2018 but you haven’t yet filed your 2019 return, and you got shorted on a stimulus check as a result, you’re still due that money — but you may need to wait until next year to get it.

I’ve heard that those stimulus checks are really just an advanced refund on a 2020 tax credit. What does that mean?

Tax credits are a dollar-for-dollar reduction of your tax liability, and some are refundable, which means that if they reduce your tax liability to below $0, the IRS will pay you the difference. That stimulus check, meanwhile, is technically a refundable tax credit for the 2020 tax year. Normally, a 2020 tax credit is something you’d claim in 2021 when you file your 2020 return.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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