Third stimulus checks and tax season FAQ: Why things could get messy

March 3, 2021 0 By boss

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The IRS could base your next stimulus check on either your 2019 or 2020 tax return.


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The House of Representatives passed the $1.9 trillion stimulus package Friday evening, bringing a third stimulus check closer to reality. However, difficulties could arise as the new stimulus payment could arrive in the midst of tax season — which is already complicated this year. Tax season ends on April 15 (unless you file an extension), which means Americans will be busy filing taxes when the possible $1,400 checks arrive.

Due to the merging of tax season and stimulus check No. 3, you likely have many questions. Will your eligibility for the new payment be based on your 2019 or 2020 taxes? Will you have to pay taxes on any of the stimulus checks? What if you didn’t file taxes in 2019 or don’t file a return before the new bill passes? What if your circumstances have changed since you last filed?

The most recent proposal for a third stimulus check helps shed some light on these questions. But until a final bill is passed, we won’t know anything for certain as anything could change between now and when the bill becomes law. We’ll continue to update this story.

Why the next stimulus check could arrive in the midst of tax season

House Speaker Nancy Pelosi said she expects Congress to have a final bill ready for Biden to sign into law by March 14, which is when some unemployment benefits expire. If Congress follows that timeline, a third stimulus check could arrive during tax season.

This makes things a bit more complicated. For one, the IRS is already including makeup stimulus money from the first two checks with your tax refund this year. It also means the IRS will likely use whichever tax return they have on file most recently (more below.) 


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Will the stimulus check be based on my 2019 or 2020 taxes?

The most recent Democratic proposal (PDF) states the IRS would determine your total third stimulus payment based on your adjusted gross income, or AGI, from either your 2020 or 2019 tax returns — whichever the IRS has most recently on file at the time of payment. 

There may be several implications to this. For example, if you earned more in 2020 than in 2019, but the IRS uses your 2019 return (and gives you more stimulus money than you might be eligible for), you won’t have to return that money (more below). 

The IRS is now accepting 2020 tax returns. We recommend filing your taxes as soon as possible for several reasons. The earlier you file, the sooner you’ll get your tax refund (you can estimate the total here) and any missing stimulus money you claimed on your return. You’ll also have a chance to set up direct deposit with the IRS, or fix any errors, which could get your third stimulus check to you faster

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With tax returns and third stimulus checks potentially occurring at the same time, the IRS could have its hands full.


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What will happen if you made more money in 2020 but the IRS uses your 2019 taxes?

The most recent proposal says the following: 

Taxpayers receiving an advance payment that exceeds their maximum eligible credit based on 2021 tax return information will not be required to repay any amount of the payment to the Treasury. If a taxpayer’s 2021 tax credit exceeds the amount of the advance payment, taxpayers can claim the difference on their 2021 tax returns.

Therefore, if you qualify for the full $1,400 based on your 2020 taxes, but the IRS issued your check based on your 2019 taxes, you could claim the difference a year from now on your 2021 tax return — much like the current Recovery Rebate Credit for missing stimulus check money from the first two rounds.

On the other hand, this also means that if you qualify for the full stimulus payment based on your 2019 taxes, but do not qualify based on your 2020 taxes, and if the IRS used your 2019 return, you won’t have to pay the IRS back for that discrepancy. 

What to do if your stimulus payment never arrives, or if any money is missing 

Once a final bill is approved, if you’re eligible to receive a third stimulus check, but yours never arrives by direct deposit, paper check or EIP card, you’ll likely have to take another step to claim that money. This happened to millions of people during the first and second round of payments for several different reasons, including IRS errors, out-of-date banking information or addresses and nonfilers not taking an extra step to get the IRS their information.

Much like with the first and second checks, you’ll be able to claim any missing money from the third check owed to you or your dependents during tax season next year, 2022. That’s a long way away. The best thing to do right now to make sure your third check does arrive on time is to file your tax return as soon as possible, even if you don’t usually have to file one.

For more, check out what we know so far about a third stimulus check and who we think will be eligible this time around.

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