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It’s already shaping up to be a confusing tax season, as millions of Americans are still waiting for their first and second stimulus checks starting in 2020, and the Senate push back about President Joe Biden’s $ 1.9 billion relief plan asking for a third check (this time for $ 1,400).
Tax filing also starts a little later this year: the IRS Announced It will begin accepting and processing fiscal year 2020 returns on February 12, as opposed to the end of January, as it does most years, so the agency has time to prepare for the new stimulus paperwork. The deadline to submit is still April 15.
If you are concerned that the extra boost you got from stimulus checks will be counted as taxable income, you need not worry. However, the stimulus money owed to you could change the amount you receive from your refund. Here’s what you need to know about your tax and stimulus check.
Neither of the two previous stimulus checks issued in 2020 is considered taxable, according to the Economic Impact Payment Information Center in the IRS website:
“… the Payment cannot be included in your gross income. Therefore, you will not include the Payment in your taxable income on your federal income tax return or pay income tax on your Payment. It will not reduce your refund or increase the amount owed when you file your 2020 federal income tax return. “
The payment will also not affect your income level for purposes of determining eligibility for federal government benefits or assistance programs.
If you haven’t received your stimulus money, it will come in the form of a tax credit, which means it will be included in your tax refund.
If you have not received one or none of the 2020 stimulus checks, you will need to request a Recovery Refund Credit when you do your taxes this year to get the money owed to you.
The Recovery Refund Credit is a tax credit against your 2020 income tax. The IRS Explain that taxpayers who claim this credit will see an increase in their tax refund or a decrease in the amount of taxes they owe.
Suppose, hypothetically, you have a tax bill of $ 2,000 this year, but you are still owed the full $ 1,800 from the two 2020 stimulus checks. You will only owe $ 200 due to offsetting the tax credit.
Alternatively, if you expect to receive a tax refund, the total amount of your refund may be higher this year when the stimulus money is taken into account.
To get an idea of what to expect, see IRS Notice 1444 and IRS Notice 1444-B. These are the letters you should have received in the mail detailing the amount of your Economic Impact Payment.
If you’ve been waiting for your stimulus check for that long, you may already have plans for your tax refund. Taking care of overdue bills, high-interest credit card balances, and immediate needs like food and shelter should be your first priority when deciding what to do with your money.
But if you have all your basic needs covered and you feel secure in your job, there are additional ways you can use your tax refund.
This might be a good time to start (or reinforce) your emergency fund. TO high yield savings account that earns a better interest rate than the national 0.05% average could help you stretch your money a little more and save more for future needs.
The Vio Bank High Yield Online Savings Account offers one of the highest APY rates for high-yield savings accounts at the moment (APYs can up and down). A minimum deposit of $ 100 is required to open an account, which is low enough that you can use a portion of your tax refund and still have money left for other expenses.
There are no monthly fees to open a Savings account vioas long as you choose not to use paper. (Otherwise, there is a $ 5 monthly fee for anyone who receives paper billing.)
Information on the Vio Bank High Yield Online Savings Account has been independently compiled by CNBC and has not been reviewed or provided by the bank prior to publication. Saw Bank is a division of MidFirst Bank, a member of the FDIC.
Annual Percentage Yield (APY)
None, if you opt for electronic statements (otherwise $ 5 per month)
Up to 6 free withdrawals or transfers per statement cycle * Withdrawal limit of 6 / statement cycle does not apply during the coronavirus outbreak under Regulation D
Excessive transaction fee
Offer checking account?
Do you offer an ATM card?
Vio charges a dormant account fee of $ 5 if you let your savings go 12 months without any transactions. The best way to avoid this is to use your stimulus to open the account and then set up a monthly recurring deposit from your checking account.
It’s a win-win situation: behavioral experts argue that automated transfers are the easier way to prioritize savings. Of course, this technique works best if you get paid on a predictable schedule, but anyone can start with a small amount (say $ 25) and increase their savings contributions over time.
For other free options, see CNBC Select’s list of best high-yield savings accounts.
Editorial note: The opinions, analyzes, reviews or recommendations expressed in this article belong solely to the editorial staff of Select and have not been reviewed, approved or endorsed by any third party.