Enter Stimulus Check - Watch Refund Go Down!

[TaxCurious3]

I was almost finished with my taxes, and got to the Federal Review. TT was asking me about my stimulus checks.

On the screen for "double-checking the amount I received", it claimed that based on my (married-filing-jointly) combined AGI, we were eligible for a First Round stimulus payment of $2,400 and a Second Round payment of $1,200.

Right off the bat, that seemed odd, because I know that since our AGI was over the stimulus threshold, we did not qualify for the full amount. We were, in fact, only eligible for a portion of that $2,400 / $1,200 - less than half of the first payment of $2,400, and none of the second payment.

It then asked if those amounts were what we received. I answered "No", and entered the actual amount that we received for the "first round payment" and $0 for the "second round payment". The result:  my Federal Refund amount suddenly went down!

Doing some research, I think I figured out why it went down - the Recovery Rebate Credit Worksheet. But there's some weird things going on...

Thing #1. The Recovery Rebate Credit Worksheet (called "worksheet" from now on) computes line 7 as $2,400, and line 10 as $1,200. That's correct.

And I'm guessing that's where TurboTax bases its claim that I'm eligible for $2,400 and $1,200 payments, But  that's not correct. Since I'm over the threshold (which is reflected in the adjustments in worksheet Lines 11-14), what I'm actually eligible for is on worksheet Lines 15 (first check) and 18 (second check). The only way the TT's claim that I'm eligible for $2,400 / $1,200 is if you use the mangled logic of "well, you're eligible for a $2,400 payment before factoring in the adjustments that only make you eligible for a portion of that and none of the $1,200."

Thing #2. I can see that before I get to the Federal Review screen, TT has filled out Lines 15 and 18 as what I'm actually eligible for. But, oddly, it has filled in both Lines 16 and 19 (the amount of the stimulus checks I actually received) with $0.00. Line 21  is computed as the amount that I'm eligible for (Lines 15 and 18) minus the amount I've actually received (Lines 16 and 19), and that value on Line 21 is then transferred to Line 30 of the Form 1040 as a tax credit, and is included in my rolling tax refund.

Since Lines 16 and 19 are both $0, the amount included in my tax refund (prior to the Federal Review) is simply the amount I'm eligible for - on Lines 15 and 18. When I get to the Federal Review screen and enter the amount of the check I actually received, that gets plugged in on Line 16, gets substracted from Line 15, and wipes out the amount reported on Line 21. Which means that my rolling tax refund is reduced by the amount of the check I received. Mystery solved.

So,

• Why is TT assuming I was eligible for $2,400 / $1,200, when Lines 15 and 18 of the worksheet clearly show I'm eligible for much less?
• Regardless of whether TT incorrectly uses Lines 7 and 10 or correctly uses Lines 15 and 18, it still knows that I'm eligible for something prior to the Federal Review screen, and yet it assumes (on Lines 16 and 19) that I haven't actually received any of that money? So basically the rolling federal refund is assuming I received no checks, and when I tell it on the Federal Review page that I have, it corrects its incorrect assumption and reduces that refund by the check amount. Why does it assume that I'm eligible for a check but haven't received it??? Did I answer something weird someplace, or skip something?

[DanaB27 · Accepted solution]

No, you did everything correctly. Yes, during the interview before you get to the stimulus payment questions TurboTax assumes you did not receive any stimulus payments and the Recovery Rebate Credit is included in the Refund shown. Then once you answer the stimulus questions it will calculate the correct amount of Recovery Rebate Credit according to your 2020 tax situation for line 30 on Form 1040.

To be eligible for the credit you need to be a U.S. citizen or U.S. resident alien in 2020 and have a Social Security number that is valid for employment.

You cannot be claimed as a dependent by someone else to be eligible. 

Your credit amount will be reduced if your 2020 adjusted gross income (AGI) is more than: 

• $150,000 if married and filing a joint return or filing as a qualifying widow or widower
• $112,500 if filing as head of household or
• $75,000 for eligible individuals filing as a single or as married filing separately.  

Your payment will be reduced by 5% of the amount by which your AGI exceeds the applicable threshold above. (IRS FAQ Recovery Rebate Credit )

1. Log into TurboTax.
2. After entering all your information click "Federal Review" at the top of your screen. 
3. On the screen "Let's make sure you got the right stimulus amount" click "Continue".
4. You will be asked about the amounts of first round and second round stimulus payments you received.  If you did not receive a payment enter "0".
5. TurboTax will then calculate the amount of stimulus payment remaining that you are still entitled to get. 
6. Any stimulus amount remaining due to you will show as a credit on line 30 of the 1040.

[TaxCurious3]

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Yes, during the interview before you get to the stimulus payment questions TurboTax assumes you did not receive any stimulus payments and ... then once you answer the stimulus questions it will calculate the correct amount of Recovery Rebate Credit...

I wish they would have asked that much earlier. What that essentially does is makes you think you're getting a refund of a certain amount, only to watch it go down at the end. First, it's disappointing. Second, it's confusing, because it sure makes it look like you're being taxed on a stimulus check - when you enter the check amount and your refund amount goes down, what else are you supposed to think?

Also, it seems odd to make the assumption that people didn't receive a check. It seems like, by far, the normal situation would be that people did receive a check. 

Just seems like TT could have handled the stimulus check situation much better.

Your payment will be reduced by 5% of the amount by which your AGI exceeds the applicable threshold above. (IRS FAQ Recovery Rebate Credit )

Exactly. And that's my point about the Federal Review page... The amount TT states I'm eligible for is the gross amount, not the net amount after AGI reduction is factored in. If my AGI was $500,000, I think the Federal Review page would say "Based on your AGI of $500,000, you're eligible for a first payment of $2,400 and a second payment of $1,200", when clearly that's not true.

Thanks for verifying I wasn't doing something wrong or misinterpreting something.

[Thiswomanworks]

My AGI for 2019 and 2020  is less than the AGI  threshold by a decent amount. My refund still went down. Is that a correct outcome?

[DanaB27]

Please be aware before you entered the stimulus payments received the refund included the amount of Recovery Rebate Credits as if you didn't receive any stimulus payments. Once you enter the stimulus payments it calculates the correct Recovery Rebate Credit amount and shows the correct total refund amount.

@Thiswomanworks