Do Stimulus Checks Count as Income?

Stimulus payments might sting a bit if taxes were due on that money, but that’s not the case. The payments are not income; they’re an advance of a new federal tax credit for the 2020 tax year born of the coronavirus crisis.

You usually can’t claim a tax credit until tax filing time, but during the pandemic, the government decided to give taxpayers their credits early in the form of cash payments, the first round beginning in April and the second, as 2021 dawned.

The devastation wrought by COVID-19 in 2020 inspired the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which triggered the first direct stimulus to millions of Americans.

As the virus lingered, a $2.3 trillion spending package that includes $900 billion in stimulus measures was signed into law on Dec. 27, 2020. It expands many of the CARES Act provisions, including the second round of direct stimulus payments.

The Two Rounds of Stimulus Checks

Act I

In April, single adults who reported adjusted gross income up to $75,000 on 2018 or 2019 tax returns and married couples filing jointly who had adjusted gross income up to $150,000 were to receive $1,200 and $2,400, respectively, and $500 for each qualifying child who was under age 17 at the end of the taxable year.

(For filers with income above those amounts, the stimulus payment was reduced by $5 for each $100 above the $75,000 and $150,000 thresholds. These folks weren’t eligible at all: single filers with income over $99,000, and childless married joint filers with income over $198,000.)

To qualify for a payment, individuals had to have a Social Security number and not be claimed as a dependent on anyone else’s tax refund. Adult dependents (including college students 17 and older claimed as dependents), nonresident aliens, and those without a Social Security number did not receive a check.

People were paid by direct deposit if they filed 2018 or 2019 returns and authorized direct deposit from the IRS; others were paid by a check in the mail.

Act II

A second round of stimulus checks began going out in late 2020. The checks are worth $600 for each adult and each dependent under 17 claimed for tax year 2019. (The first round of stimulus checks was based on information from either 2018 or 2019 tax returns. The second-round stimulus payments are based on only 2019 returns.)

Individuals who reported adjusted gross income of less than $75,000 in the 2019 federal tax filing and married couples filing jointly with adjusted gross income of less than $150,000 are to receive the full amount of the check. (This time around, single filers with adjusted gross income exceeding $87,000, and married joint filers with no children who made over $174,000 are not eligible. )

Americans who have not filed tax returns recently but receive Social Security payments for disability or retirement, Supplemental Security Income, and veterans benefits will get their second payments the same way they did in the spring.

Again, 17- or 18-year-old high school students or college students claimed as dependents will not receive a payment; nor will other adult dependents.

Does Unemployment Count as Income?

Yes, unemployment compensation is considered income.

The CARES Act created the Federal Pandemic Unemployment Compensation program, which stipulated that individuals who were collecting unemployment would receive an additional $600 per week. That program ended in July.

Two other programs were scheduled to end in late December: Pandemic Unemployment Assistance, which paid benefits to people like self-employed and gig workers, who are typically not eligible for state unemployment insurance, and Pandemic Emergency Unemployment Compensation, which paid up to 13 extra weeks of unemployment benefits beyond states’ traditional payout.

The $900 billion coronavirus relief bill signed by the president on Dec. 27 promised people earning unemployment benefits an extra $300 per week, as opposed to the original $600 per week, for 11 weeks.

Base unemployment as well as the $600 and $300 additional payments are subject to federal income tax and any applicable local and state income taxes.

You can have taxes withheld from benefit payments like a regular paycheck, pay the taxes when you file your tax return, or pay quarterly estimated taxes.

Thoughts for Tax Filing Time

People who did not receive a stimulus payment, or received a reduced payment, may be eligible to claim the Recovery Rebate Credit on their tax year 2020 federal income tax return.

The Recovery Rebate Credit will be on Form 1040 or Form 1040-SR, the IRS notes.

The Economic Impact Payments, as the IRS calls the stimulus payments, will not reduce your tax refund, and are not a tax deduction. A tax deduction is good, but a tax credit is really good.

Unlike a tax deduction, a tax credit reduces your taxes dollar for dollar. If you owe $1,800 in federal income taxes and you get an $1,800 tax credit, your tax bill drops to zero.

Additionally, if taxpayers received a federal tax refund in 2020, they may have been paid interest. Refund interest is taxable. In January 2021, the IRS will send Form 1099-INT to taxpayers who received interest of $10 or more.

Charitable deduction changes also are being introduced. Taxpayers who do not itemize deductions can take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations.

Because refunds may take longer to send out due to COVID-19, the IRS says taxpayers should be cautious about relying on their anticipated refund to pay bills and other expenses.

Just like in 2019, refunds for tax returns that claim the Earned Income Tax Credit or Additional Child Tax Credit cannot be issued before mid-February. This rule applies to the entire refund, including the portion that is not associated with these credits.

According to the IRS, the safest and fastest way to receive a refund is to use direct deposit and electronic filing like the IRS Free File program. Taxpayers can utilize the Where’s My Refund? tool on IRS.gov and call the IRS at (800) 829-1040 if it has been 21 or more days since they e-filed or Where’s My Refund? instructs them to get in touch with the IRS.

The SoFi Tax Hub Can Help

Taxpayers may have more questions than usual about filing tax returns in 2021.

For information about all things taxes, check out SoFi’s Tax Help Center.

Learn the tax implications of investment income, interest, real estate rent, capital gains, and stock options.

Find out how your loans or college savings plans may affect your tax situation.

Use the IRS links to look into your tax refund status, find coronavirus tax relief information, and make a tax payment all in one place.

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