How Will Incentive Checks Affect My Taxes?
The last of the $ 600 incentive checks was sent to the IRS , so you should have received yours by now. But what if your checks never arrived? And how do you get these funds as a tax credit? Should you pay taxes on your incentive checks? Here’s what you need to know.
I still haven’t received my incentive payment, how can I get it?
The IRS warns that some random $ 600 checks may still be in the mail, and this is especially true of any mail forwarded to a different address. In this case, you can wait a little while filing your tax return. Otherwise, you’ll want to claim the first check for $ 1,200 or the second check for $ 600 as a rebate on your tax return (that is, if you’re eligible for them ).
To do this, using tax software, you will want to look for “Returnable Recovery Credit” as an option on your return (if you make less than $ 72,000, use the IRS Free File program for free). On the other hand, if you are manually applying or want a more detailed explanation of how this discount is entered into your Form 1040 or Form 1040-SR,watch this in-depth step-by-step video .
However, there is one caveat. If you receive a notice from the IRS confirming that checks have been sent or deposited – either from a letter or as a status in their Get My Payment online tool – the IRS recommends that you initiate payment tracking . This tool will help you confirm with the IRS that checks have been lost, stolen, or destroyed. However, before you do this, follow these instructions to make sure that enough time has passed since the date the IRS status was confirmed:
- Five days after direct transfer.
- Four weeks since the check was sent to the standard address.
- Six weeks since the check was sent to the forwarding address.
- Nine weeks since the check was sent to the foreign address.
The IRS will advise the next steps and then cancel the check, giving you the option to claim the rebate as part of your taxes (since the checks will not be reissued). Unfortunately, the tracking process can take up to eight weeks, and it seems necessary – if you ignore the payment tracking tool and claim a discount on your tax return, the IRS may incorrectly rule that you are not eligible for the discount.
So, if you are filing your 2020 tax return before tracking is complete, the IRS recommends that you do not include the payment amount on line 16 or 19 of the Refund Refund Chart. In this case, it looks like you will have to get the funds back from your 2021 tax return. This is not ideal, to put it mildly.
Do I have to pay taxes on incentive money checks?
Not at the federal level (those not less, Oregon imposed a tax ), since the incentive payments are not considered income, they are not taxed, and they do not reduce your tax refund when you file your tax return for 2020 this year. The payment also does not count as income when determining if you are eligible for federal assistance or benefits.
However, the IRS can repurpose incentive funds for unpaid first-check support. The second round of reviews could be repurposed for child support, as well as outstanding student loans and some federal or state tax arrears.
Will the timing of my tax return affect my third incentive check?
Oddly enough, yes , due to timing issues. Because the Incentives Act is expected to be passed before the end of the tax season, not all people will be filing for the 2020 tax year. In this case, the IRS will have to trim the checks based on your 2019 or 2020 annual gross income, whichever they have on hand. In this case, if your income was lower in 2020 than in 2019, you will want to apply in advance to maximize your income. Conversely, if you earned less in 2019, you can postpone until the end of March when checks are settled and sent out. Check out this Lifehacker post for more information. This story was updated on February 19, 2021 to reflect that incentive checks are taxed in Oregon, but not at the federal level.