Questions abound about the stimulus checks and taxes. Read on to learn how it will impact your tax situation.
The majority of people who qualify for a stimulus check have already received their direct deposits, paper checks or prepaid debit cards. But the payments — $1,200 for most single earners and $2,400 for most married couples — have raised plenty of questions about how they’ll impact taxes.
Chief among those is whether the payments, which are designed to help families weather the economic hit from the coronavirus pandemic, are subject to income taxes. In other words, should people set aside a chunk of the payment to pay the IRS when they file their 2020 tax returns?
„Something a lot of people don’t realize is that stimulus payments are not taxable,“ Christina Taylor, head of tax operations at Credit Karma Tax, told CBS MoneyWatch. „They’re actually an advance on a new credit on your 2020 federal income taxes.“
It’s understandable that there’s confusion among consumers. The IRS and Treasury’s official term for the payments — economic impact payments — doesn’t hint at the fact the payments are actually a type of tax credit, for example. Because the checks are advances on a tax credit for 2020, taxpayers will get another chance to reconcile their income and dependents information when they file their 2020 tax returns in early 2021.
„If you didn’t qualify for the stimulus payment based on the prior year’s income, but you do qualify for it based on your 2020 income, you can claim the stimulus payment as a credit on your 2020 tax return,“ Taylor noted.
