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Kelly Bullis: COVID-19 stimulus check: Is it taxable?

By Kelly J. Bullis

Well greetings! As we languish in continuous lockdown, many of us have now received our stimulus checks. There are many rumors running around about whether they are an advance on our 2020 tax refund, or that we have to report them as taxable income in 2020, etc.

Let me set the record straight on something I know about. (My wife will tell you I don’t know much, so hey, I need to flaunt what little I have.)

Background: The CARES Act was passed and signed into law on March 27 and provides for, among other things, an “Economic Impact Payment” to American households of up to $1,200 per adult and $500 per child under 17 years old.

There are income limitations, based upon either your 2019 or if not filed yet, 2018 Adjusted Gross Income (AGI). A single individual can have up to $99,000 in AGI and a married person up to $198,000 before they get nothing. (The payments begin to phase out at $75,000 for singles and $150,000 for marrieds.)

To answer the second rumor (Do you have to report it as taxable income in 2020?) NO!

The other concern (Is it an advance on my 2020 refund?) Maybe. Actually, it is more like an advance on a 2020 tax credit.

When you file your 2020 return, there will be a way to compute what you were actually entitled to and maximize the credit to either your 2019 AGI or your 2020 AGI (whichever gets you the largest credit).

Then you list the amount of the stimulus check you actually received. It is either a wash (credit allowed equals stimulus check you received) or an additional credit if your actual stimulus check was less than your actual computed credit. If you got a bigger credit than you should have, you do NOT have to pay any back. Keep it.

Let’s run through a couple of examples:

Scenario 1: Fred and Wilma had one child and got a stimulus check of $2,900. (Fred-$1,200, Wilma-$1,200, Bam-Bam at $500). When Fred and Wilma actually file their 2020 return, their AGI is less than $150,000. Their 2019 AGI was also less than $150,000. Thus, they were entitled to a 2020 tax credit of $2,900. Since they actually already received that amount, they get $0 additional when they file their 2020 return.

Scenario 2: Barney and Betty also have one child, and they got a stimulus check of $1,975. (Because their 2019 AGI was $168,500, which was $18,500 over the $150,000 AGI threshold.) When Barney and Betty filed their 2020 return, their AGI came in at $149,500. (Less than the $150,000 threshold.) Thus their 2020 Stimulus Credit is $2,900. Since they will show actually receiving only $1,975, they will be entitled to an additional $925 credit applied to their 2020 return to be used to either pay tax or become an additional refund. (Maybe they could now buy Pebbles a new pet T-Rex?)

One might ask, “How come Barney made more than Fred in 2019?” To please my wife, I will just admit, “I don’t know.”

Did you hear? Job 30:24 says, “Yet does not one in a heap of ruins stretch out his hand, and in his disaster cry for help?”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com, also on Facebook.