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.
Karen P. Schaeffer is the managing member and co-founder of Schaeffer Financial, a financial consulting firm in suburban Washington, D.C.
She has been advising clients for over 40 years and has developed a diverse client base including professional women, Foreign Service Officers, foreign nationals and federal government employees. In addition to her financial planning practice, she is a popular lecturer and seminar leader. She has spoken on global financial planning issues at many international conferences and has represented the CFP Board at Financial Planning Standards Board meetings around the world. Organizations that have drawn on her expertise include the World Bank, the Department of the Treasury, the International Monetary Fund, the Federal Deposit Insurance Corp. and the Department of State.
Nancy A. Kistner, CFP, is a managing director, wealth strategy executive and head of business strategy for the Bank of America Private Bank Wealth Strategy Group.
She also serves as the wealth strategy division executive for New York and the West Division for the Private Bank headquartered in New York. In addition to leading business strategy for the Wealth Strategy Group in the Private Bank, she directs the efforts of wealth strategists throughout New York City and the West Division, encompassing twelve markets across eight states including Arizona, California, Colorado, Nevada, New York, Oregon, Utah and Washington. She also serves as an executive leader of the Private Bank Onboarding Council, Whole Family Engagement Council and Advisor/Analyst Development Programs.
Justin Peterson is a Deadly Weapons Protection Underwriter at Beazley. He has been with Beazley since 2022.
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.
