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Saturday, February 4, 2023

Focus On Stimulus Checks In 2023: Will Federal And State Affect 2022 Income Tax Returns

With the 2022 financial year drawing to a close, citizens are hoping for a turnaround in the federal position on stimulus checks in 2023. Despite record inflation that led to high prices of every product and service from gasoline to groceries, and home rent and transport charges, the federal administration has provided no relief this year unlike in the previous two years.

It was left to the states to step in with multiple forms of relief in more than 20 states, but their impact was not at the same level as the federal benefits. While the American Rescue Plan Act poured in billion in aid including the third economic impact payment, it also provided funds to states that helped them continue sending out stimulus checks to residents as relief from high prices in 2022.

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But the multiple rounds of stimulus checks have also created confusion about the tax implication of the stimulus checks in 2022. The Internal Revenue Service has cautioned that the absence of federal stimulus checks this year will hurt federal tax refunds in 2023.

Americans received generous income tax returns in 2021 and 2022 but next year will be different as filers will not receive any additional stimulus check with their income tax refund in 2023 as there were no federal Economic Impact Payments for 2022.

Where there has been little news about another round of federal stimulus payments, many states in 2022 have given out tax rebates to residents.

State Stimulus Checks In The Festive Season

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Most states that are giving out inflation relief stimulus checks in 2022 have sent out payments as direct bank transfers, paper checks, tax rebates, and even relief from sales tax for certain products. But some states have timed their payments to coincide with the festive season and the payments are expected to continue into January 2023.

The California Middle-Class Tax Rebate started in the first week of October though the bill was signed By Governor Gavin Newsom in June 2022. The one-off payments, the third stimulus check from the Golden State will benefit up to 23 million residents in the largest program of its kind in the history of the state.

The highest amount $1,050 will go out to married couples with a dependent and $150,000 or less Adjusted Gross Income in their 2020 California state income tax returns.

The payments will total $9.5 million marking the largest program of its kind in the history of the state. the initiative comes as a relief from the record inflation that has reached unbearable highs for low and middle-class citizens.

While many states relied on the Rescue Plan funds provided by the federal government, California fell back on a record $97.5 billion surplus even as it finalized its budget including the payments in the middle of this year.

Governor Gavin Newsom stated that the expensive market had forced the Democratic administration of the state to give back some of the money to low and middle-income individuals and families.

The refunds that are between $200 and $1,050 helped families pay for everything from groceries to gasoline. The requirements for retirement payment were simple and linked to the 2020 state income tax returns.

Potential beneficiaries must have been residents of California for at least 6 months in the tax year that is being considered, which is 2020, and must also be current residents of the state at the time the payments are dispersed.

Beneficiaries must also have filed their 2020 state income tax return by October 15, 2021, and have an AGI within the required limits as stipulated by the state administration. You must also not have been claimed as a dependent by someone else in the tax year.

Eligible couples who filed joint received in the range of $400 to $1,050 while for individuals the range is $200 to $700.

The check amount is thus linked to two factors; the presence of dependents and the AGI for 2020.

Individuals with an AGI for 2020 of less than $75,000 received a stimulus check of $350 plus the same amount if they included a dependent in their 2020 income tax return.

For individuals with an AGI between $75,001 and $125,000, the stimulus check amount comes to $250 while for married couples filing jointly the amount is $250 for the second filer.

The maximum amount allowable was an AGI of up to $250,000 for individual filers and $500,000 for joint filers.

Refunds For 2022 Will See A Drastic Reduction Warn IRS

The IRS has cautioned that refunds for the 2020 tax year may be smaller in 2023. They have said that taxpayers will not receive any additional stimulus checks with their 2023 tax refunds as there were no Economic Impact Payments in 2022. Other federal stimulus checks such as the EITC and the expanded Child Tax Credit stimulus checks have also been done away with in 2022.

The IRS has also given a warning about the timings of the refunds this year filers who normally receive a refund check by the first of March and have made plans to spend the money in a major way such as a purchase or a vacation should be careful as the funds will be delayed this year.

The IRS has taken measures to strengthen security and protect against theft of identity, a problem that filers faced in the past two years with the series of stimulus checks and income tax refund payments. The tax authorities will need more time this year to rectify such glitches in the sending of payments.

The IRS has advised filers to have a backup plan in place to account for the delay in refunds in 2023.

The Expiry Of The Child Tax Credit Stimulus Checks Hit Parents Hard

The expansion of the Child Tax Credit from $2,000 to between $3,000 and $3,600 per child, had been a big boost for parents in 2020. The monthly checks and later the refunds with the 2022 income tax return had helped many families with children to emerge from poverty for the first time in their lives.

Republican lawmakers in Washington voted against the extension of the CTC stimulus checks beyond its first year after it expired in December 2021. Incidentally, it was the last of the federal stimulus checks.

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