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In April, the federal government began sending stimulus payments to millions of Americans in an effort to ease financial stress caused by the COVID-19 pandemic and to boost the U.S. economy. These payments offer a bit of relief for people who have struggled to pay rent, buy groceries or take care of other basic needs as a result of the pandemic-triggered downturn.
If you received one of these checks or are on track to get one, you might be curious how the stimulus payment affects your taxes. In short, while there is a relationship between your check and your taxes, receiving a check won't increase your tax liability or reduce your refund.
Read on to learn about the impact of your stimulus check on your taxes.
How Are the Stimulus Check and My Taxes Related?
The government agency in charge of making sure you get your stimulus check is the Internal Revenue Service, which also issues federal tax refunds and collects payments. Talk of the IRS may cause a feeling of dread, especially if you tend to owe money at tax time, but there's nothing to worry about here.
The stimulus money is not considered taxable income. The check will not increase the amount you owe when you file your 2020 federal tax return and will not decrease your refund for the 2020 tax year. The IRS and your tax filings are only involved because the government needs to verify your income to issue your stimulus payment.
The federal government uses your federal tax return for 2018 or 2019 to calculate the amount of your stimulus check. If you already filed your 2019 return, that information will be the foundation for your stimulus payment. If you haven't filed a 2019 return, the IRS will rely on information from your 2018 return to determine your stimulus amount.
But what if your income has changed dramatically in recent years, and you worry it may complicate matters? Here's how that works:
- If your income is lower in 2020 than it was 2018 or 2019, you could be eligible for a stimulus check based on your 2020 income. That payment would come after you file your federal return for the 2020 tax year.
- If your income goes up in 2020 compared with 2018 or 2019, you won't be forced to pay back the stimulus money and won't lose any of your 2019 or 2020 tax refund.
And what if you haven't recently filed taxes at all? This is how distribution works:
- Social Security recipients, railroad retirees and military veterans who weren't required to file 2018 or 2019 federal tax returns automatically receive a $1,200 stimulus check.
- Americans who do not receive federal benefits and did not file 2018 or 2019 tax returns can qualify for stimulus checks by using the IRS tool for nonfilers, or by filing a 2019 return if you earn nontaxable income or do not make enough money to normally require submitting a tax return.
Stimulus payments are being made through the end of 2020. If you do not get a stimulus payment this year, you will be able to claim it when you file your 2020 tax return next year.
Is the Stimulus Check Just an Advance on My Tax Refund or Government Benefits?
Your stimulus check is not an advance tax refund, and will not affect tax refunds based on your 2019 and 2020 tax returns. Additionally, you will not have to repay the stimulus money.
The stimulus payment is a new federal tax credit for the 2020 tax year, which is why you may have heard it referred to as a stimulus rebate. But unlike other rebates, such as the federal child tax credit or earned income tax credit, Americans are eligible now to receive payments instead of having to wait until tax time next year for a larger refund or a tax payment reduction.
Your stimulus payment should also not affect the amount of money you get through federal benefits, such as Social Security, and your state-based unemployment benefits should be safe as well. Receiving unemployment benefits doesn't disqualify you from also receiving a stimulus check, nor will it reduce the benefit amount you'll receive from either source. Keep in mind that while the stimulus payment is not taxed, unemployment benefits are subject to federal income taxes and some state income taxes.
Can My Stimulus Check Payment Be Seized?
First, the good news. If you owe money to the federal government in back taxes or defaulted student loan debt, your stimulus check should be safe from what's known as a federal offset or federal garnishment. In other words, you're typically able to keep your full stimulus payment in this case.
However, the federal government can take all or part of your stimulus check if you're overdue on child support payments.
You also might lose that money if a court has ordered you to make certain types of payments, such as if a judge has demanded that you turn over money to a debt collector. The Indiana and Texas supreme courts have halted seizures by debt collectors, and some state officials have advised that debt collectors are prohibited from seizing stimulus checks. In April, attorneys general from 25 states called on the U.S. Treasury Department to ban debt collectors from seizing stimulus checks.
Furthermore, your bank or credit union might seize your stimulus check, without a court order, if you owe money to them. For instance, your bank or credit union might take your stimulus money if you have an overdue auto loan, a delinquent personal loan or an overdrawn account.
What can you do if your stimulus check has been seized? Options include:
- Working with the debt collector to pay the money you owe in hopes of preserving the stimulus money.
- Reaching out to your state's child support office about whether catching up on overdue child support could free up the stimulus money.
- Contacting your bank or credit union to see whether your debt can be resolved so you can keep your stimulus payment.
- Checking with your state attorney general's office or your state's consumer protection agency about your legal remedies.
- Seeking help from a nonprofit consumer advocacy organization like the National Consumer Law Center.
Getting the Help You Need
For anyone facing financial difficulties during the coronavirus pandemic, a stimulus check can help cover rent, groceries and other necessities—and can help ease a tough situation. Staying informed can help ensure you receive the stimulus money that you're entitled to. And if you believe you deserve a stimulus check but are running into trouble getting one, don't be shy about asking for help from a nonprofit consumer advocacy group or a nonprofit legal aid organization. We can all use a helping hand in times like these.