File now, file later—which is right for you?

By Lauren Phillips
March 10, 2021

If 2020 taught us to expect the unexpected, the 2020 tax season—happening now through April 15—has only carved the lesson in stone. First, tax season started about two weeks later than usual, shortening the total time people have to file their taxes in the U.S. Second, some people were encouraged to wait to file their taxes until promised aid was passed by the federal government—and now that that aid is imminent, some people may want to take quick action on their taxes to reap the benefits.

Standard advice is to file your taxes as soon as possible. Doing so ensures you'll get your tax refund earlier (if you will get one), avoid processing delays at the IRS, and avoid giving identity thieves the opportunity to file a return on your behalf and steal your refund. This year, though, there are special considerations every household should make to decide when to file their taxes—particularly if the health and economic challenges of 2020 impacted your household income—because it can affect your eligibility for stimulus checks and other aid. Read on for tips on deciding when to file your taxes if your income changed, or you received unemployment benefits last year.

If you lost significant income in 2020…

You may want to file your taxes now. The new American Rescue Plan includes a third round of stimulus checks for eligible individuals earning $75,000 or less ($150,000 for couples filing jointly). This stimulus money will be distributed based on your 2019 tax return if you have not already filed your 2020 return. That distinction is key, particularly if you lost income in 2020.

The first and second rounds of stimulus checks—for $1,200 and $600 per adult, respectively—went to people based on their 2019 income. If you earned more than $75,000 as an individual or $150,000 as a couple filing jointly, and that was reflected on your 2019 tax return, you received a smaller stimulus check. If you earned more than $99,000 ($198,000 for a couple filing jointly), you received no stimulus money at all.

Unfortunately, many, many people experienced layoffs, furloughs, or pay cuts in 2020. Their household income may have plummeted, but because they earned above the cutoff in 2019, they still did not receive stimulus money. Fortunately, there is an option to reclaim that money through the Recovery Rebate Credit when you file your 2020 taxes, but if you are newly eligible for this third round of stimulus, you should file your taxes for last year as soon as possible (like, today) to ensure you receive the money when it is distributed in the next few weeks. Otherwise, you may have to wait until you file your 2021 taxes to receive a credit (if one is offered at all).

If you lost your job in 2020 and received unemployment benefits…

If you received unemployment benefits in 2020, you might consider waiting to file your taxes—but it ultimately depends on your specific situation. You will owe taxes on the money you received if none was withheld, but the American Rescue Plan includes a measure that makes some amount (but not all) of 2020 benefits tax-free for those with incomes of less than $150,000.

For unemployed people who have not filed their 2020 taxes yet, this measure will likely be automatically applied to their tax return. Those who have already filed will still be able to take advantage of the tax-free measure, but it’s unclear how—you may need to file an amended return, but the IRS has not made a formal statement on how the measure will work.

The tricky piece is for those who need to file their taxes early to qualify for a stimulus check, but who also received unemployment benefits. People who fall into this category will likely benefit more from filing now, so they receive this third round of stimulus money, but they should do so with the knowledge that there is a chance they’ll need to file an amendment later to ensure they do not have to pay taxes on all their unemployment benefits. Hopefully, the IRS will implement some automatic feature to ensure everyone eligible automatically owes no money on a chunk of their unemployment benefits, but it’s not guaranteed.

If you have qualified for stimulus checks all along (and still qualify for the latest round) and received unemployment benefits, you’re free to wait to file your taxes until more firm guidance from the IRS on this measure is available.

If you earned more money in 2020 than 2019…

It’s up to you when you want to file your taxes. Because previous stimulus check eligibility was based on 2018 or 2019 tax returns, you may have qualified for all or some of the money based on your income in those years. If your income increased in 2020 and you file your taxes now, though, you will likely not receive a third stimulus check (or you may receive a smaller one). Waiting to file your 2020 taxes until after stimulus checks are distributed will likely ensure that you receive a check.

Every financial situation is different, particularly when yours includes multiple dependents or other factors. If you have concerns about your options and aren’t sure what to do, speak with a tax professional to pick the right course of action for you and your family.