Do You Have to Pay Taxes On Federal Stimulus Checks?
The U.S. government is in the process of issuing millions of federal stimulus checks to citizens, called Economic Impact Payments, or EIPs. The EIPs, authorized by the CARES Act (Coronavirus Aid Relief and Economic Security Act), are $1,200 for each qualifying adult plus $500 per qualifying child under 17. The majority of Americans have or will receive this money via direct deposit or via a paper check sent in the mail, depending on whether bank information is available to the IRS.
Because this is a new program, it brings many questions. We’ll list (and answer) them here:
1- “Do You Have to Pay Taxes On Federal Stimulus Checks?”
We have some good news for you: the stimulus checks are not subject to state or federal income tax.
Why is this? Your economic stimulus checks are not considered income. They’re an advance of a federal tax credit.
2 – “Are the Economic Stimulus Checks Counted as Taxable Income?”
Your EIP isn’t taxable income, so it won’t affect your tax bracket, nor will it impact tax credits and deductions that have income limits.
3 – “Why Are Federal Stimulus Checks a Tax Credit?”
Normally, you claim tax credits with your federal tax return come tax time.
If you qualify for the credit, the money will reduce your tax liability or will be paid to you if it is a refundable credit
But, this is a different type of tax credit. The U.S. government wants to stimulate the American economy now, so they are distributing the payments now, instead of when you file your 2020 taxes next year.
When you file your 2020 tax return, you’ll receive any additional credit you’re due. For example, if you had a child in 2020, the additional $500 for qualifying children won’t be included in your advance but you’ll be able to receive it when you file your 2020 return tax year.
On the other hand, in most instances, if you received an advance that is more than your credit you won’t have to repay the excess.
“4 – Will I Still Be Able to Claim Other Tax Credits And Deductions?”
Many people also wonder if they’ll still be able to claim the same tax credits and deductions they normally do for 2019 and 2020 tax returns.
The answer is “yes”. You can still claim the normal credits and deductions, as the economic stimulus payment doesn’t affect other tax moves you make.
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