Tax time is almost here, so there have been some questions about how the stimulus checks from 2020 might affect your tax return. As previously noted earlier, after the first stimulus checks were sent out, they will not. The IRS has said the payments are not considered income and taxpayers do not owe taxes on it. The first stimulus check was sent to Americans after the CARES Act was signed into law in March 2020, then a second was sent in December when another coronavirus relief package was passed in Washington. President Joe Biden has proposed sending a third check to Americans in his American Rescue Plan.
Back in May 2020, the IRS launched a Q&A page on the economic impact payments. The top answer confirmed the payments are not considered taxable income. "The payment is not income and taxpayers will not owe tax on it," the IRS' statement reads. "The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs."
Since the stimulus check is considered a "tax credit," it has left many confused. Some thought it would be added to your income, meaning you would have to pay more taxes. Others thought it was like receiving part of your tax return early. Neither of these is true. As AARP explains, the payments are like an advanced refundable tax credit. A tax credit can cut your tax bill. For example, if you owe $1,500 in federal income tax and you get a $1,000 tax credit, you now owe just $500. If you owe $1,000 in federal taxes but have a refundable tax credit of $1,200, this means the government owes you a $200 tax refund check. It's also important to note that you can claim your stimulus payment on your 2020 tax return if you did not receive as much as you believe you are entitled to.
After the first EIP was mailed out, there was plenty of misinformation on the web about the check. One viral social media post claimed Americans were "automatically" going to owe the IRS $1,200 when they file their taxes in 2021. As FactCheck.org pointed out in April, this is not true.
The first stimulus check was part of the CARES Act. Qualifying Americans were supposed to receive $1,200, or $2,400 for married couples who file jointly. Dependents 17 or younger received $500. In December, Congress and President Donald Trump passed another coronavirus relief package, which included a $600 stimulus check. Democrats pushed for a $2,000 stimulus check at the time, but this did not come to fruition. Biden's proposed relief package includes a $1,400 payment for individual Americans.