As part of the CARES Act, the federal government began sending stimulus payments to millions of Americans in April. These payments were supposed to help people pay their bills and boost the U.S. economy during the lockdown conditions of the coronavirus pandemic and ensuing business slowdown. Even before the checks began arriving in mailboxes and directly into bank accounts, rumors and confusion abounded regarding how this money would affect Americans’ taxes.
The first thing to know is that a stimulus check—officially called an “Economic Impact Payment” by the IRS—won’t increase the taxes you owe—it’s not taxable income—or reduce your refund. You will not have to repay the stimulus money.
Now that we’ve squashed rumors about owing the money back, let’s take a deeper dive into how these EIPs work in relation to taxes.
They’re a tax credit for tax year 2020
One of the reasons the myths about the EIP’s increasing your taxes owed or reducing your tax refund might have started is because the EIP money is related to taxes: the stimulus payments are tax credits for the 2020 tax year. Unlike other federal tax credits (sometimes called ‘tax rebates’) is that you’re receiving it now instead of waiting until you’ve filed your 2020 taxes next year.
A quick refresher—a tax refund is when you overpay on your taxes and the government owes you money back; a credit reduces the taxes you owe. Either way, you’re keeping more of your money, but they do work differently, and it’s important to know your stimulus payment is a credit.
For example, you will owe the federal government $1,200 less if you’re a single filer earning less than $75,000 a year. Whatever the amount of your EIP, you will owe that amount less in taxes next year.
How your EIP was calculated based on past tax returns
The federal government used your federal tax return for 2018 or 2019 to calculate the amount of your stimulus check, whichever was the latest tax year they had on file for you. If your income is lower in 2020 than in your latest-filed taxes, you could be eligible for a credit on your 2020 federal tax return, but you wouldn’t receive it until 2021 after you’ve filed. If your income increased in 2020, you won’t need to pay back the EIP money and you won’t lose any 2019 or 2020 tax refund. If you can claim a dependent on your 2020 tax return that you couldn’t claim in 2019, you should get a $500 EIP (per dependent) next year.
Those who weren't required to file 2018 or 2019 federal tax returns, like Social Security recipients, railroad retirees and military veterans, should automatically receive a $1,200 stimulus check. If you don’t receive federal benefits and did not file 2018 or 2019 tax returns, you can qualify for a stimulus check by using the IRS tool for non-filers, or by filing a 2019 return if you earn nontaxable income or do not make enough money to normally submit a tax return.
If you don’t get a stimulus payment this year for some reason, you can still claim it when you file your 2020 tax return. If you owe money in back taxes or have defaulted on federal student loan debt, your EIP should not be garnished and you should still receive it. The federal government can take all or part of your stimulus payment if you’re overdue on child support payments.Go to main navigation