How Taxes Now Can Be Affected By Past Stimulus Check

Receiving a stimulus check during COVID should not directly ruin your taxes, but it could impact your tax situation depending on your specific circumstances. Here's an explanation of why this might have happened and what to expect going forward:

1. Stimulus Checks Were Not Taxable

Non-Taxable Income: The stimulus payments (Economic Impact Payments) were considered advance tax credits and were not taxable. They were pre-payments of the Recovery Rebate Credit.
Tax Filing Impact: If you received the correct amount of stimulus, it shouldn’t have negatively affected your tax return. However, discrepancies in reporting might have caused issues.

2. Possible Reasons for Tax Issues

Here are some reasons your taxes may have been affected in recent years:

Incorrect Reporting: If you mistakenly claimed a Recovery Rebate Credit for a stimulus payment you already received, the IRS might have adjusted your return, reducing your refund or causing a balance due.
Changes in Income or Status: If your income or filing status changed significantly, it could alter your eligibility for credits or deductions, reducing your refund or increasing your tax liability.
Withholding Issues: If you didn’t adjust your tax withholding properly, you might owe more at tax time.

3. Will You Get a Break This Year?

No New Stimulus Payments: For 2023 taxes (filed in 2024), there are no stimulus payments or Recovery Rebate Credits to worry about. This simplifies your return compared to prior years.
Evaluate Withholdings: Check your Form W-4 with your employer to ensure you’re withholding enough to avoid owing taxes.
Standard Refunds: If your tax situation is straightforward (no kids, no significant deductions), you may still get a small refund depending on how much you had withheld throughout the year.

4. Steps to Take Now

Review Your Tax Documents: Gather your W-2, 1099s, or other tax forms to prepare for filing.
Adjust Your Withholding: If you owed taxes last year, consider adjusting your W-4 to withhold more and avoid surprises.
Claim Tax Credits: Look into credits you may qualify for, such as the Lifetime Learning Credit if you were a student during part of the year.
File Early: Filing early can help you understand your tax situation sooner and avoid any surprises.

If you’re uncertain, a tax professional can review your prior returns to ensure no mistakes were made and help you optimize your filing this year.