As part of economic legislation aimed at mitigating the impact of the coronavirus, millions of individuals and families were eligible to receive stimulus payments, also referred to as economic impact payments by the Internal Revenue Service. The federal government sent out two stimulus payments in 2020, and one in 2021. Many people wonder if those payments are taxable or otherwise affect their taxes.
Stimulus payments are characterized as a refundable tax credit, a type of payment rarely used by the government previously. This type of payment differs substantially from a tax deduction or standard tax credit. A refundable tax credit provides advance payment of a tax credit. Instead of waiting until you file your tax return to claim the credit, the government pays you the amount of the credit in advance.
Like a standard tax credit, stimulus payments are not taxable. An official IRS statement answers the question of whether the 2020 stimulus payments are includible in gross income as follows:
No, the payment is not includible in your gross income. Therefore, you will not include the payment in your taxable income on your federal income tax return or pay income tax on your payment. It will not reduce your refund or increase the amount you owe when you file your 2020 federal income tax return.
A payment also will not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.
In confirming the non-taxable status of stimulus payments, the IRS statement is great news for anyone who was eligible to receive them. The 2021 stimulus payments, like those made in 2020, are refundable tax credits. So none of the stimulus payments are reportable as income on 2020 or 2021 tax filings. They also do not affect entitlement to government benefits.
If you were eligible for the 2020 stimulus payments but did not receive them, or received less than you were entitled to, the 2020 tax form includes a place to claim a recovery rebate credit. Completing the section on the tax form enables a person to receive missed stimulus payments or recover the amount of underpayment as an increase in their tax refund or a decrease in the amount of tax owed.
The due date for 2020 tax returns was May 17, 2021, on account of an extension from April 15th granted to everyone by the IRS. If you already filed your 2020 return, you may need to wait until you file your 2021 return to recover missed payments or underpayments. While it’s too early to know if the 2021 tax form will include a recovery rebate credit, it seems likely that it will. If you filed a request for an automatic extension for filing your 2020 return, you have until October 15th to file and claim your stimulus payments by completing the recovery rebate credit section on the form.
The IRS calculated the amount of stimulus payments based on income reported on previous tax returns. In some cases, returns filed after issuance of a stimulus payment lowered the amount a person was entitled to receive. For example, if the IRS calculated the stimulus amount based on your 2018 or 2019 return, and your income was higher in 2020, you may have received more than you were actually owed.
There’s good news for anyone who received an overpayment. The excess amount does not have to be repaid to the IRS. However, there are times when you may need to return some or all of a stimulus payment you received. These situations usually involve an error by the IRS. They include:
If you think you may be required to return some or all of a stimulus payment, you should check with the IRS or consult a tax professional before taking action.
If you have questions, the IRS website has detailed information about stimulus payments readily available for individuals, families, and businesses. You can even calculate the amounts of your entitlement to stimulus payments through links the IRS provides. If you need personal assistance, the IRS provides telephone help for some types of issues.
If you prefer not to contact the IRS directly, you should contact a tax professional for assistance. Legal issues relating to the stimulus payments can be extremely complex in some circumstances, so it’s not advisable to try to resolve them without some type of help.
Our experienced family law and business attorneys at Sloan Law Firm assist clients with questions relating to taxes, including coronavirus economic impact assistance and stimulus payments, as well as the child tax credit. With offices in Topeka and Lawrence, we help clients throughout Kansas. We invite you to contact us by calling (785) 357-6311 or using our online contact form.