Search
Close this search box.
Blog » Money Tips » How COVID-19 May Impact Your Taxes

How COVID-19 May Impact Your Taxes

COVID-19 May Impact Your Taxes

Everyone knows that 2020 was a landmark year in myriad ways. No matter who you are, you have been impacted by the COVID-19 pandemic. The pandemic has devastated many industries, causing a ton of struggles for small businesses in particular. Along with general finances, your tax returns for 2020 may be affected by the virus as well. Let’s discuss the most common ways COVID-19 may impact your taxes this year. 

How COVID-19 May Impact Your Taxes Through Economic Impact Payments

It seems like a lifetime ago that Congress and the President first passed the CARES Act. And no wonder—it was way back in the first few weeks of the pandemic’s grip on the country. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27, 2020. As you know, the intent of this legislation was to provide some economic assistance to Americans under hardship due to the pandemic. Unemployment, reduced work hours, increased need for sick leave, and more issues have affected families. 

Part of the CARES Act was the provision of Economic Impact Payments, otherwise known as stimulus checks. Any qualified adult or child would receive a set amount of money to help families get through this tough time. 

And don’t worry—those stimulus checks are not taxable income. However, they may impact your taxes a bit anyway.

Who Received Economic Impact Payments

The first round of stimulus checks began going out to households in the spring of 2020, early in the pandemic. As you probably know, those first checks included the following amounts:

  • $1,200 per qualifying adult (or $2,400 for married couples filing jointly)
  • $500 per qualifying child under age 17

To be eligible for this money, adults needed to have an adjusted gross income (AGI) of up to $75,000. Above $75,000, the stimulus payments were reduced by $5 for every additional $100 of income. And once your AGI reached $99,000 you would receive no stimulus payment at all. 

For the second round of stimulus payments, the maximum income levels are raised. Instead of $75,000 for the maximum AGI, this time it’s $87,000 (based on 2019 returns). Again, the payment is gradually phased out from $75,000 up to the $87,000 level. 

The amounts for the second Economic Impact Payment have changed as well:

  • $600 per qualifying adult (or $1,200 for married couples filing jointly)
  • $600 per qualifying child under age 17

Many Americans are still waiting for either their first stimulus check, their second, or both. This is really unfortunate, especially for those families who desperately need assistance to pay their bills. It’s a tough situation, so let’s hope the federal government gets the money out quickly to those who need it most. 

Again, economic Impact Payments are not taxable income. You don’t have to report them on your 2020 tax returns. However, you will have to file a Recovery Rebate credit on your tax return if you didn’t receive either or both of these payments. Check to be sure of your eligibility, and if you haven’t gotten your money, be sure to complete the paperwork for the tax credit. 

Recovery Rebate Credit—Am I Eligible?

The Recovery Rebate Credit is available to anyone in the U.S. who didn’t receive their Economic Impact Payments. The two stimulus payments, if you were eligible to receive them, will only affect your taxes if you did not receive them. 

So if you are still waiting for your first stimulus check, or it was in a lesser amount than expected, you can claim the Recovery Rebate Credit. The same goes for the second stimulus payment. If you were eligible for this assistance and it didn’t arrive by January 15th, apply for the Recovery Rebate Credit on your 2020 taxes. 

Here’s another unfortunate issue with the stimulus payments: the IRS cannot send them out after January 15th. If you’re among those who received their stimulus deposits promptly, great! But if not, your stimulus funds are going to face big delays. 

You’ll have to wait for W-2 forms from your employer, which could take until the end of January. Then, of course, once you’ve filed your taxes, it can take some time for everything to go through. And if you don’t prepare your tax returns personally, you may have to wait for a tax professional to become available. 

Paycheck Protection Plan (PPP) Loans

COVID-19 may impact your taxes via the Paycheck Protection Plan, or PPP. If you’re a business owner who took out a PPP loan in 2020, you’ll need to proceed carefully on your business tax returns. 

The loans offered by the PPP were intended to help employers with payroll, rent, utilities, mortgage interest, and other related business expenses. Those loans are forgivable if the owner spent at least 60% of the funds on payroll for employees. Having your PPP loan forgiven, or discharged, is a benefit because then it won’t count towards taxable income. 

A bit of an issue with these PPP loans is that business owners have used them for qualified business expenses. Many of those expenses would normally be tax-deductible, but if you used PPP funds to pay them, you cannot deduct them. It seems a little counterintuitive, as it somewhat negates the benefit of the loan, but that appears to be the case. You can read more on the details of the PPP loans and tax deductions here

COVID-19 Impacts on Taxes

Of course, you’ll want to check the IRS website for any updates to the tax code, especially as it relates to COVID-19. It’s always a good idea to consult with a tax professional as well. The more complicated your tax returns are, the more important it is to get them done correctly. 

About Due’s Editorial Process

We uphold a strict editorial policy that focuses on factual accuracy, relevance, and impartiality. Our content, created by leading finance and industry experts, is reviewed by a team of seasoned editors to ensure compliance with the highest standards in reporting and publishing.

TAGS
Personal Finance Writer
Kate Underwood is a personal finance writer who frequently annoys her friends and family with finance recommendations. She graduated from Wheaton College with a teaching degree. She pivoted a few years ago, leaving a longtime teaching career to pursue freelance writing, and has loved every minute of it! She’s a mom of two and in her free time enjoys all things related to nature, hiking, and The Office.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Categories

Top Trending Posts

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More