According to this Ameritrade Survey conducted on line last May, 32% of the over 1,000 adults surveyed mistakenly believed they had to pay back the Trump Administration’s stimulus check next tax season. Simply put: no, they do not. The stimulus payment is an advance tax credit.
Investopedia defines tax credit as “an amount of money that taxpayers can subtract from taxes owed to their government.” So, unlike “deductions and exemptions, which reduce the amount of taxable income, a tax credit reduces the actual amount of tax the taxpayer owes.” It is a dollar-for dollar match that you subtract from the amount of income tax you must pay.
So, again, if you received that windfall stimulus money in early 2020, it is an untaxable freebee. You don’t have to pay it back; it doesn’t increase your income, and it is not taxable like unemployment payments, for example.
But this isn’t the only myth Americans have been led to believe about their stimulus payments. So, let’s put an end to all of the misconceptions right now.
More Misconceptions Debunked
The stimulus money does not get applied to your tax bill if you owe taxes.
The IRS did not automatically reduce your stimulus money and apply it to the amount you owe. The only exception would have been if the taxpayer was behind on child support. Any taxes becoming due on the July 15, 2020, tax filing deadline is a separate matter, although it would be wise to apply some of the stimulus money to the 2019 tax bill.
The stimulus payment does not reduce your next tax refund
In the words of the IRS: “Stimulus checks ‘will not reduce your refund or increase the amount you owe when you file your 2020 tax return next year.” So, expect to receive the refund you qualify for along as well as the stimulus payment. If you overpaid your taxes throughout the tax year, the IRS will credit that refund to you as usual.
The Stimulus Check is NOT Taxable Income
Unlike gambling winnings or some legal settlements, the stimulus payment will not be taxed. A residual benefit is that the $2,400 married payment (plus $500 for each child) you received will not increase your taxable income or bump you into a higher tax bracket.
The key point here is that the stimulus payment is a tax credit for the 2020 tax season. If you didn’t qualify because of high 2018 and 2019 earnings, you may be experiencing a lower income in 2020 because of the coronavirus pandemic. In that case, come next tax season—i.e., your 2021 filing — you could qualify for a stimulus check.
Learn more about the Economic Impact Payments on the IRS webpage.
What’s Next?
As of mid-June, according to CNBC online, almost 160 million Americans received their stimulus payments totaling nearly $267 billion. President Donald Trump is open to a new round of coronavirus relief spending. The Democrat House wants another series of even more generous stimulus payments topping out at $6,000 per family. Republicans want to focus on providing incentives for people to get back to work.
We’ll report more details on pending relief packages as they become available.
