Believe it or not, tax season is upon us. On February 12th, the IRS began officially accepting tax returns for the 2020 tax year, but recent congressional action may affect whether you should file now, or later. Before sharpening your tax pencils, consider the following questions.
Q: With new Economic Impact Payments (EIP), or “stimulus” payments, being considered by Congress, should I file my income taxes now or later?
A: Income thresholds to qualify for payments have not been determined yet. Your eligibility will be based on your last income tax return so if your 2020 income was lower than your 2019 income, it may make sense to file now. If your 2019 income was lower, waiting to file may help with eligibility. But don’t wait too long! April 15th is the last day to file without an extension.
Q: If I qualified for EIP payments but have not received them, how can I get them now?
A: If you have not received your first or second EIP, or you believe you have not received the full amount you are entitled to, the only way to get those payments now is to file your income tax return and claim the tax credit for the amount you are entitled to but did not receive. This could mean a bigger tax refund.
Q: Other than the EIP/Stimulus, why should I file early?
A: One reason to file early is to prevent fraud by someone filing a false return under your name to steal your refund. If this happens, when you go to file, the IRS will stop your return from getting processed while the identity theft is investigated, delaying the refund you are entitled to.
A simple way to avoid this risk is to file for an Identity Protection PIN (IP PIN). An IP PIN is a six-digit number that prevents someone else from filing a tax return using your Social Security number. The IP PIN is known only to you and the IRS and helps verify your identity when you file. There is no cost for obtaining an IP PIN, so go to https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin and request one today. (Note: If you file a joint return, you’ll want to request one for your spouse as well.)
Q: Do I have to report my stimulus payments as income?
A: No. The stimulus is not income but must be reported or “reconciled” on your tax return. If you received more than you should have you will not need to pay anything back. If you received less than you should have you can claim the tax credit for the additional amount you should have received.
Q: Will the EIP/Stimulus payments give me a bigger refund?
A: If you are entitled to a refund and have not received some or all the stimulus payments you are entitled to, claiming the credit for them on your tax return will increase your refund.
Q: If I owe taxes or back taxes, will the stimulus money be taken?
A: Maybe. If you did not already receive the payment and are claiming it on your income tax return as a credit you may owe less tax than you otherwise would have. In this case, while you would not receive your stimulus as cash, it would lower your tax liability benefiting you.
If you are eligible for a refund but owe back taxes, the IRS can take the refund as always.
Q: When are my taxes due?
A: Tax returns are due by April 15, 2021, but you can always file for an automatic six-month extension if you need more time. However, if you think you will owe the IRS money you should file—or at least make payment—no later than April 15th to avoid late payment penalties.