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PILLA TALKS TAXES - Featured Article(s)
_________________________________________ 

THE $600 STIMULUS CHECKS ARE IN THE MAIL

Are Stimulus Payments Taxable? 

 

The $600 “recovery rebate” checks authorized by the Consolidated Appropriations Act, 2021, have been hitting mailboxes and bank accounts since late December. The second round of economic impact payments (EIP) from the federal government is equal to $600 per person and $1,200 for married couples filing joint tax returns. You get another $600 per child who is your dependent and is under the age of 17. So a family of five gets a second-round government check of $3,000. 

Per the Consolidated Appropriations Act, this payment is in addition to the first round of stimulus checks that went out last spring and summer. 

By now you should have received IRS Notice 1444 or Notice 1444-B. Notice 1444 shows how much you were paid in EIP for the first round, and Notice 1444-B shows how much EIP you were paid in the second round. 

Are the Payments Considered Taxable Income? 

I’ve been asked this question a hundred times in the past few weeks. The short answer is, no, they are not. Rather, they are pre-paid tax credits. That is, it’s like somebody else (the federal government) is paying your taxes for you. This operates just like the Earned Income Tax Credit. It’s in every way a welfare program administered by the IRS. 

If you didn’t get your check, don’t panic. Line 30 on the 2020 Form 1040 allows you to claim the Recovery Rebate Credit directly on the tax return. By claiming the credit on your tax return, you lower the tax you otherwise would have to pay. 

For example, suppose your total 2020 tax liability is $5,000. You didn’t get your first round rebate check of $2,400 (for you and your spouse). In that case, you claim the $2,400 as a credit on Form 1040. That reduces to $2,600 the amount you have to pay to the IRS (assuming no other tax payments were made). 

So whether you got the check in the mail or you claim the credit on your tax return, either way, you get the full benefit of the “free” money. 

Figuring the Credit 

As stated, you will claim the credit in an amount equal to the EIP you were entitled to receive, less the amount you actually did receive. For example, suppose you are married with one child. For the first round of EIP payments, you were entitled to a total of $2,900 ($1,200 per adult and $500 for the dependent child). Suppose you received just $1,200. In that case, you claim a Recovery Rebate Credit on line 30 of Form 1040 in the amount of $1,700 (2,900 – 1,200). 

There is a worksheet in the instructions for Form 1040 that walks you through this process.

 

This is a partial portion of the full February Pilla talks Taxes electronic newsletter. 2021 issue of Pilla Talks Taxes Newsletter.  

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I've been reading up on the deferment of Social Security and Medicare. 
Please
tell Dan his article on deferring SS and Medicare was by far the best 
and most complete article on the subject I have seen…Great job!!!   Dave N. CPA, CTRS Fircrest, Washington

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ARTICLES FOUND IN THE LATEST 

PILLA TALKS TAXES ISSUE:


February 
2021 

 

GRANTS FOR SHUTTERED VENUE OPERATORS
More Free Money Under the Consolidated Appropriations Act, 2021

 THE $600 STIMULUS CHECKS ARE IN THE MAIL
Are Stimulus Payments Taxable?

 RECOVERY REBATE CREDIT WORKSHEET

BUDGET ESTIMATES FOR INCREASED RECOVERY REBATE CREDITS
Is this really a good idea?

THE INTERNAL REVENUE SERVICE ADVISORY COUNCIL
New Members Named to Panel 

WHO WANTS TO CUT TAXES FOR THE RICH?

 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

  



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