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Refundable Stimulus Payment's Effect on 2020 Returns

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    #1

    Refundable Stimulus Payment's Effect on 2020 Returns

    I know that the $ 1,200 will not be taxable income but am just a little fuzzy on the effect of this "refundable credit" on next years returns.
    Many years ago, I believe, we had a smaller such stimulus paid to us, maybe under the younger president Bush. Can't recall the details.
    I understand a refundable credit to mean it is paid out even if no tax is shown on the return, but In this case, the bucks have already been paid out.
    Could someone explain how this is going to factor into 2020 returns ?
    Thanks for your comments.
    Tags: None
    #2
    The 2020 return will have a credit. When you enter the advance payment, it will reconcile with the credit. If the credit is more, your client gets an additional refund. If the credit is less, the credit is reduced, but NOT below zero; there is no payback.

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      #3
      This is my take on this so pls correct me if I'm wrong: a) assume 2020 return before the 1,200 entered, refund would be 500, enter the 1,200 payment, final refund is 0; b) if refund before 1,200 entered was 1,500, then final refund would be 300; c) assume 2020 return before the 1,200 entered, balance due is 700, enter the 1,200 payment, final balance due is 0; d) if balance due before 1,200 entered is 2,000, then final balance due would be 800.

      Comment

        #4
        Think I get this now (at least I hope so). Did some further research. Lion's reply nailed it.
        It seems that the stimulus credit reconciliation and the tax calculations on the 2020 return will involve two separate piles of money.
        If this is correct, the credit gets reconciled against itself - it doesn't reduce the regular refund - but a larger credit amount on the return is possible.
        So someone that received the $1,200 advance credit (assuming they were eligible) and has a $1,300 regular tax refund on the return will still get their $1,300 refund.
        That this is called an advance credit implies it is something akin to a loan against the regular refund, but this apparently is not so.
        If someone out there thinks I still misunderstand this, I'd be obliged if you'd let me know.
        Thanks for comments.


        Comment

          #5
          See Line 10 on TY2010 Schedule M (Form 1040), here: https://www.irs.gov/pub/irs-prior/f1040sm--2010.pdf

          It will probably work the same way in 2020 for EIP.
          "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

          Comment

            #6
            Originally posted by Greenbriar View Post
            This is my take on this so pls correct me if I'm wrong: a) assume 2020 return before the 1,200 entered, refund would be 500, enter the 1,200 payment, final refund is 0; b) if refund before 1,200 entered was 1,500, then final refund would be 300; c) assume 2020 return before the 1,200 entered, balance due is 700, enter the 1,200 payment, final balance due is 0; d) if balance due before 1,200 entered is 2,000, then final balance due would be 800.
            GB - I don't think it goes like that. I think RWG is more on target.

            Look back at a 2017 Form 1040 - I think it's clearer to see. The stimulus is a 2020 refundable credit being paid now. To get a handle look back at the 2017 Form 1040.

            Line 63 - total tax
            Line 64 - FWT
            Lines 67-69 were the common refundable credits - they could only add to your refund. Obviously, the line numbers will be different but there will be a calculation in "line 68.5" to reconcile the stimulus - did the taxpayer get the right amount? If too little, then it will be added on to the total payments. If too much, they lucked out - no negatives on "line 68.5"

            Like everyone else, I stand to be corrected but I like RWG's post.

            Comment

              #7
              Originally posted by New York Enrolled Agent View Post
              there will be a calculation in "line 68.5" to reconcile the stimulus - did the taxpayer get the right amount? If too little, then it will be added on to the total payments. If too much, they lucked out - no negatives on "line 68.5"
              Except I don't see how it could be done on a single line on Form 1040. They will probably have to use a separate schedule as with the Making Work Pay Credit in 2009 & 2010 (see my link above). This is because they will need to be able to calculate the phase-out based on AGI, etc.

              "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

              Comment

                #8
                Now the big question is - will the IRS be sending out 1099-G's to taxpayers to show the correct amount of the stimulus check paid so next year tax preparers will know exactly how much to reconcile to?
                Uncle Sam, CPA, EA. ARA, NTPI Fellow

                Comment

                  #9
                  Originally posted by Uncle Sam View Post
                  Now the big question is - will the IRS be sending out 1099-G's to taxpayers to show the correct amount of the stimulus check paid so next year tax preparers will know exactly how much to reconcile to?

                  If a client is dumb enough that they can't figure out how much they received, I don't want them as a client. LOL. :-)
                  • Likes 1

                  Comment

                    #10
                    Not 1099-G forms by paper mail, but most likely an online lookup tool, just as they have done in the past with (as I recall) the Making Work Pay credit, or the First Time Homebuyers Credit.
                    "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

                    Comment

                      #11
                      Everyone should get a notice. It's just that they'll get it now and will have no idea what happened to it 10 months from now when we're doing their 2020 returns.

                      (6) NOTICE TO TAXPAYER.—Not later than 15
                      days after the date on which the Secretary distrib-
                      uted any payment to an eligible taxpayer pursuant
                      to this subsection, notice shall be sent by mail to
                      such taxpayer’s last known address. Such notice
                      shall indicate the method by which such payment
                      was made, the amount of such payment, and a
                      phone number for the appropriate point of contact
                      at the Internal Revenue Service to report any failure
                      to receive such payment."

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