Will the money I withdrew from my 401k in 2020 for covid, impact the income thresholds for future stimulus?

It all depends on how the numbers work for you.  These are the factors that you should consider.

If you withdrew $12,000 from your 401K and paid the Coronavirus distribution over three years, your adjusted gross income will increase $4,000 on:

• The current 2020 tax return,
• The 2021 tax return, and
• The 2022 tax return.

Under current law, the Child Tax Credit is reduced by $50 for each $1,000 of modified AGI above:

$400,000 Married filing jointly, or

$200,000 other filing categories.

Under the American Rescue Plan:

Expanded Child Tax Credit

Beginning in tax year 2021(the taxes you file in 2022) the Child Tax Credit will be expanded. The bill increases the amount that families claiming the Child Tax Credit receive from $2,000 to:

• $3,600 for each child under 6
• $3,000 for each child age 6-17

The credit is now fully refundable – that means that you are eligible for the credit even if you don’t owe taxes.

Although this credit is for next year’s tax filings, payments will also be sent in advance, over the course of the year, beginning no earlier than July 2021 so people don’t have to wait to file their  2021 taxes. The IRS will likely determine eligibility based on your most recent tax filing.