2020 introduced a number of unprecedented situations that have required some massive adjustments. And now, with the tax filing season upon us, a raft of brand new challenges await ahead of the April 15 deadline.
Chief among them: uncertainty around the economic stimulus given to American taxpayers as part of the Coronavirus Aid, Relief and Economic Security, or CARES Act.
Last spring, in the throes of the first round of stay-at-home orders across the country, American taxpayers received up to $1,200 per person, with an additional $500 per qualifying child, of economic stimulus. How much was determined by the number of people in a respective household, and the taxpayer’s or household’s adjusted gross income for 2019 or 2018.
Sounds straightforward so far, right? Well, in a recent virtual seminar I conducted, it seemed that, as many professionals have begun to get their ducks in a row to help their clients in 2021, they’re not finding it to be so simple.
Rina Wulfing is the senior policy lead for North America, Wise.
Steve Lockshin, an entrepreneur and financial advisor, is a principal of AdvicePeriod and a co-founder of estate planning software firm Vanilla.
Prior to co-founding AdvicePeriod, he was chairman of Convergent Wealth Advisors, a company he founded in 1994. Lockshin is widely known for his contemporary approach to wealth advisory as well as his estate-planning knowledge and is a frequent speaker on both topics. He memorialized his concerns about conflicts of interest in the industry in his guide for consumers, "Get Wise to Your Advisor."
Janthana Kaenprakhamroy, the author of Navigating Insurtech and CEO of Tapoly. Forbes listed her as number 6 among the Top 100 Women Founders to watch and recognized her as one of the Top Ten Insurtech Female Influencers by The Insurance Institute. Recently, she was named one of the Most Influential Women in Tech 2023 and received the Innovator of the Year award at the UK FinTech Awards 2023. Furthermore, she was honoured as the winner of the Insurance Leader of the Year by the Women In Finance Awards 2021. Prior to her current roles, she served as a chartered accountant and internal audit director at top-tier investment banks.
Chief among the questions I received was whether a tax professional needs to know how much stimulus a taxpayer received. The answer to that question is “Yes,” and somewhat surprisingly, that creates a potential complication.
Why? Well, for starters, many taxpayers have undergone a series of life-changing events: everything from migrating to virtual work to setting up their kids for remote schooling. As a result, these spring payments seem like they were doled out about 10 years ago. There are a large number of taxpayers who simply don’t remember how big of a check they received from the government.
Of course, along with those checks came documentation that taxpayers may have filed away. But that letter was discarded by many. Why? Some simply did so in haste, while others might not have thought it would be relevant to their 2020 return.
Whatever the reason for a missing paper trail, taxpayers who used direct deposit should be able to track down this exact sum on their bank statement. But for those who were issued checks or prepaid cards, it might cause a hiccup in the process, and in some cases, delay return preparation this spring.
Individuals have their questions, too. After consulting with tax pros, I’ve been told that many taxpayers are unsure if the stimulus was a loan that needed to be paid back. The stimulus, of course, was not a loan and doesn’t need to be paid back to the government, unlike business owners who took out loans as part of the Paycheck Protection Program that haven’t been (or won’t be) forgiven. But the fact that more than one tax professional said they had clients ask could be a harbinger for a season where filers are coming in with a lot more uncertainty than usual.
Now, as a second round of stimulus is starting to hit taxpayers’ bank accounts, it would behoove tax pros and payers alike to be diligent about documenting these payments. Forward-thinking tax professionals can get ahead of a new round of uncertainty by making sure their clients keep thorough records of anything, and that’s important. Because from all early indications, it seems like filing season is going to be filled with headaches: a cherry on top of the 2020 sundae.
