Is Your COVID-19 Stimulus Payment Taxable?
The COVID-19 stimulus payment most individuals recently received is not taxable. The payment is not an advance on future tax refunds; therefore, it will not reduce a future refund, and it does not have to be paid back. Unfortunately, there has been confusion over these payments because of misleading messages spread over social media that could lead to fears of future tax audits.
Stimulus Payments are Tax Credits
The stimulus payment, referred to as an Economic Impact payment was sent either through direct deposit, check, or payment card is a new tax credit. Like the Child Tax Credit and Earned Income Tax Credit that eligible taxpayers can receive when filing their taxes, it is a credit that does not need to be repaid.
Under the Coronavirus Aid, Relief, and Economic Act (CARES Act), most individuals making under $75,000 a year were eligible for a $1,200 lump-sum payment. A sliding scale allowed individuals making up to $99,000 to receive a reduced amount. Married couples, who filed jointly, and had a combined income of less than $150,000 were eligible to receive $2,400. Parents were eligible to collect $500 per child.
What Should Taxpayers Consider When Filing Their Federal Income Taxes?
According to the United States Treasury Department, stimulus payments are not considered income. Whether taxpayers were eligible for all or part of the payment, they will not owe tax on it when they file their 2020 tax returns next year.
The IRS based eligibility for stimulus payments on taxpayers’ last income tax filing, which has led to some confusion. Individuals who had not yet filed their 2019 income taxes had the amount of their stimulus payment determined by the reported income on their 2018 tax filing. If they had filed their 2019 taxes and reported a higher income, they may have been excluded from receiving the payment. However, because the tax filing deadline was delayed until July 15, 2020, these individuals are also not required to pay back or report the stimulus as income if their incomes exceeded the maximum allowable amounts. This will be of relief to those who worried they might need tax audit help.
It is recommended that individuals who have not yet filed their 2019 income tax return do so as soon as possible, especially if they will be receiving a refund. This will help avoid delays as July 15 draws closer. Those who expect to owe taxes for 2019 have also been given a reprieve until July 15 to pay what they owe without incurring penalties or interest fees for paying after April 15.