It ought to be noted somewhere, these payments are going to be in the form of an advance on your next year’s tax refund, and it’s not clear what happens if next year around this time it turns out that you were advance-refunded more than you were due. It may add to your taxes then. If only for that reason, take care what you do with this money!
Thank you, Daniel. I had not heard this yet. As a pastor, I never pay actual federal income tax, but I pay twice as much (along with the self employed) on FICA and SS. I doubt they will reduce what I have to pay on that side, which means, that if it is truly an advance, I’m going to owe it all back. Writing that check would not be nearly as fun as receiving it.
Anyway, maybe I can invest it in the meantime and the market will skyrocket and I can keep the difference. I’m going to need it if the inflation people are expecting happens.
Daniel, would you please include a link to document that? I mean… yikes. That’s awful.
The section titled “Recovery Rebates” in this article was helpful.
Also in the CARES Act itself it keeps talking about an “advance refund of credit.” I can’t claim to completely understand section (f) "Coordination with advance refunds of credit or (g) “Advance refunds and credits,” but these are the paragraphs the other article is explaining.
My best guess is that you should consider you’re spending next year’s tax refund. And if you were going to owe, that it’s your future grandkids’ tax refund.
I was under the impression that, though it is technically an advance on your 2020 tax refund, there is a credit added to 2020 in the amount that you received from the stimulus check. So it is essentially an advance on the credit that you would receive next year, so there would be nothing to pay back.
I dunno, I was looking at this in the law:
(f) Coordination with advance refunds of credit.—
(1) IN GENERAL.—The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (g).
Seems to me the “shall be reduced” would have been “shall be piled onto” if it was going to add to your credit next year. Though it’s hard to understand.
Makes the law of the Lord’s beauty shine brighter, to read stuff like this.
I suppose this motivated me to make my first post…I have been a “lurker” for quite some time. But I am something of an accountant - though NOT a tax specialist - and my understanding of what a “refundable tax credit” is that it increases the refund you would have gotten for a specific tax year. In other words, this tax credit is in addition to the refund you will get for tax year 2020 - it under most circumstances will not affect that refund. Here is a link that goes into more detail: Forbes Magazine Article
Read this and see if it puts your minds at ease. Best regards and God bless.
Thank you for the helpful explanation and link, Will. And welcome!
@Will Can you tell me where you see that the refund in question is documented as a refundable credit? Perhaps I’m just not understanding what I’m seeing in the CARES act, but I was looking for that kind of language and didn’t see it, and the other sources I now see asserting that it is refundable are simply asserting that without citing sources.
I’m a CPA who specializes in tax and have dug into this topic to answer the questions my own clients have had. It is a 2020 tax credit with an advance payment based on calculating the credit as if it were available on your 2019 (or 2018 if 2019 hasn’t been filed). The credit available on the 2020 return will be reduced, but not below zero, by the advance payment, which means you may be able to claim additional credit when filing your 2020 return (for example, if you have another child born in 2020), but you will not have to pay back any excess advanced.
Section C of the bill states:
“( c) Treatment Of Credit.—The credit allowed by subsection (a) shall be treated as allowed by subpart C of part IV of subchapter A of chapter 1.
This is the section of the IRC for refundable credits.
Yes, Will has this exactly right. This advance payment will NOT reduce the amount of refund a taxpayer would have had, otherwise.
Thanks, @Zak_Carter. That’s the connection I was missing.
Pastors actually aren’t exempt from federal income tax. Your tax bill is likely zero because you have a lot of kids and you aren’t in a high income bracket. But close to half Americans also don’t pay federal income tax so you are in good company.
You pay what would normally be the employer’s share of payroll taxes because the state doesn’t want to tax a church. Therefore pastors are taxed as self-employed. The housing allowance for pastors is because of parsonages; it allows the pastor to receive tax free housing whether or not their congregation provides them with a parsonage.
Source: husband is a tax legislation expert. (He also agrees that no one will be paying back the checks as said above)
Thanks for the question, and thanks to Zak Carter for answering it much more ably than I could have. I will let his answer suffice as I can tell you are fine with it. God bless, Will.