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Timing your income tax filing just right could mean a bigger stimulus check
The timing of filing a 2020 tax return is extra important this year – if you get it right, it could lead to a bigger stimulus check.
The Senate this week is expected to take up President Joe Biden’s $1.9 trillion stimulus plan, which includes $1,400 stimulus checks to Americans receiving the full amount.
Thus far, the payments are based on the same requirements as the first two checks: The full amount will go to individuals with up to $75,000 in adjusted gross income and married couples filing jointly with up to $150,000 in income. In addition, children and adult dependents may also be eligible for a $1,400 check.
Of course, some of the details could change in the coming days as the Senate mulls the bill. Still, the timing of filing 2020 taxes before or after the stimulus is ultimately passed could make a difference in the size of stimulus check received.
When it makes sense to file as soon as possible
One reason to file your 2020 tax return before the next Covid relief bill passes is if you experienced something that changed your eligibility for a payment or means you should receive a larger amount, according to certified financial planner Luis Rosa, enrolled agent and founder of Build a Better Financial Future in Henderson, Nevada.
That includes things such as having a drop in income from 2019 to 2020, having a baby or bringing another child or dependent into your household.
If this is the case, you could claim previous stimulus payments owed on your tax return as a recovery rebate credit, and make sure you have the most up-to-date information on file for the next round, he said. This could either lead to a larger tax refund or reduce the amount you may owe the IRS.
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If you’re someone who has not had to file a tax return previously, you should submit one this year, as it is the only way to claim stimulus checks you were owed and to make sure the IRS has your information for any future payments.
Those who’ve changed their bank accounts or moved in the last year may also want to file their taxes now. As with previous stimulus payments, the IRS will send any upcoming ones first through direct deposit using the bank account on file, and then through the mail to what addresses they have.
If the IRS has an incorrect address or bank account for you, it could significantly delay receipt of any upcoming stimulus checks and potentially mean you don’t get one. If that happens, you may have to wait to claim the money on next year’s tax return.
“You can still ultimately get the stimulus payment on your 2021 return,” said Henry Grzes, lead manager for tax practice and ethics for the American Institute of Certified Public Accountants. “The problem is if you need the money today, waiting until March of 2022 to get the money isn’t going to help you.”
When it might make sense to wait
Of course, it may make sense for some people to wait to file to get a larger stimulus check.
If you made more money in 2020, it could potentially make you ineligible for a payment or mean you’d get a lower amount.
That means some people may want to file their tax return after the latest Covid bill is passed and any stimulus goes out, so the payment is calculated using their 2019 information. If you might fall into this category, it could be worth it to prepare your 2020 taxes to see what your adjusted gross income was and compare it to the guidelines in the latest stimulus bill proposal, said Rosa.
“You can prepare your tax return and not file so that at least you do know where you are,” he said, adding that if you were to receive a payment this way, you wouldn’t be penalized later or asked by the IRS to return the money.
To be sure, holding off on filing your 2020 tax return means that you’re delaying getting back any refund that you’re owed. For some, waiting until after the stimulus bill is passed for a payment might not be worth it, according to Grzes.
“You don’t want to unnecessarily delay filing your 2020 return, especially if you’ve got $2,000 already coming to you,” he said. And, if you happen to owe the IRS, you still have to pay your bill by the April 15 filing deadline or you could incur penalty charges.
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