File Your 2020 Tax Return Now Or Later? Why It Matters This Year

It may pay to file your tax return early this year as new laws could impact your payout

The Senate and the House are currently working their way through approving another round of stimulus to help keep people and businesses afloat during the pandemic.  Like previous rounds, it is expected to include stimulus checks paid to individuals and families.

This would include $1,400 per individual, plus children and adult dependents qualify this time as well. You must have income below $75,000 if you are a single filer or income below $150,000 if you file jointly with your spouse to get the full stimulus payment.

In past packages, the stimulus payment would phase out completely for a single filer who earned more than $100,000 or a married couple who earned more than $200,000.  It was recently announced that the new package may have the phase out happen much faster, with single filers being completely phased out once they earn more than $80,000 and married couples phasing out once they earn more than $160,000.

The IRS will use whichever tax information is most up to date for you, which would be your 2019 tax return if you haven’t filed your 2020 tax return yet. This provides the context for deciding when to file your 2020 tax return.

Key planning point:

      • If you find yourself close to the phase out levels listed above, you should be conscious of when you file your 2020 tax return.

Here’s an example:

Joe is a single filer and earned $74,000 in 2019. He received a promotion in 2020 and ended up earning $83,000 for the year. If he waits to file his 2020 tax return he should qualify for the full $1,400 payment.

But, if he files his 2020 tax return before receiving the stimulus payment, he may end up getting nothing since his 2020 income was too high. Keep in mind the IRS has previously stated that those who receive a stimulus payment who ultimately should have received less or no payment will not have to pay back the difference.

Also, Congress had indicated they are aiming to approve the stimulus package by mid-March, whereas the tax filing deadline isn’t until April 15th.

If you are due a big refund, you may not want to delay filing either way, but be certain to compare your 2019 income to your 2020 income before deciding when to file this year, since it may impact your stimulus payment.

This year it literally pays to pay attention to when you file your tax return.

Steven Elwell, CFP®
Partner, Chief Investment Officer

 

Steven Elwell
Steven Elwell