Are Stimulus Checks Taxable Income?

Are Stimulus Checks Taxable Income? If you have received stimulus payment(s) and are wondering if they are considered by the IRS as taxable income, we can help. As you get ready to file your taxes, it is important to know whether the stimulus checks you received as part of the pandemic recovery result in you owing money to the IRS.

Also, do you have to claim them on your tax returns, and how do they affect your taxes?

In this post, we will answer the question of whether stimulus payments are earned income.

Furthermore, we will discuss whether your stimulus checks will reduce your tax refund for 2020 or 2021.

Additionally, we will provide answers to other commonly asked questions about the stimulus payments.

Neither of the two previous stimulus checks delivered in 2020 is considered taxable, according to the IRS website:

″…the Payment is not includible in your gross income. Therefore, you will not include the Payment in your taxable income on your Federal income tax return or pay income tax on your Payment. It will not reduce your refund or increase the amount you owe when you file your 2020 Federal income tax return.”

The payment will also not impact your income level for purposes of determining eligibility for federal government assistance or benefit programs.

Lastly, If you haven’t received your stimulus money, it will come in form of a tax credit, which means it will be wrapped up with your tax refund.

Here’s what you need to know:

The stimulus checks are considered tax credits, not income.

Therefore, you will not have to report them as income when you file your tax returns in 2021 (or for the third payment next year).

Additionally, any tax refund you are owed this year or next will not be reduced because of the stimulus checks you received.

Furthermore, your stimulus payments will also not impact your income level for purposes of determining eligibility for federal government assistance or benefit programs, such as SNAP or Medicaid.

Stimulus Check FAQs

Here are the top questions about the Stimulus Check, including what to do if you did not get the first or second stimulus.

Can debt collectors take my stimulus check?

Yes. If you owe money and are expecting to receive a stimulus payment, a debt collector could garnish it.

That is because, unlike the first and second stimulus bills, the third stimulus package was passed through a process known as budget reconciliation — not like a typical bill.

As a result, the stimulus payments are vulnerable to debt collectors.

Which Tax Return will be used to Calculate the Stimulus Check Amount?

The income limits for the third stimulus check will be based on a taxpayer’s most recent return.

Therefore, if you have already filed a 2020 return by the time the stimulus payment is sent, the IRS will base your eligibility on your 2020 adjusted gross income.

However, if you are yet to file your 2020 return, then the IRS will use your 2019 return.

If you do not file a tax return, you can use the IRS “Get my payment” portal to provide the IRS with relevant information they need to determine your eligibility.

See our post on how to use the IRS Stimulus Check Portal.

When will my Stimulus Check Arrive?

The IRS started mailing the third stimulus checks starting on March 12, 2021.

Checks will be sent via:

Direct Deposit (see details about Direct Deposit Dates below).
Paper Check

Stimulus Debit Card

Here’s the possible timeline for when you can expect your stimulus check.

Process Remaining for Stimulus Bill	Actual and Future Possible Dates
House of Representatives Passes Bill	February 27, 2021
Senate Passes Stimulus Bill	March 6, 2021
House of Representatives Votes on Senate Bill	March 9, 2021
Stimulus bill signed into law by President Biden	Thursday, March 11
First direct deposit check sent by IRS	March 12 (pending), March 17 (official)
First paper checks sent by IRS	Week of March 22
First EIP Prepaid Debit Card sent by IRS	Week of March 29
IRS deadline to finish sending checks	Dec. 31, 2021 (mandated by the bill)
Last date to receive a check	January 2022 (if checks sent late December)
Claims for missing stimulus money open	2021 tax season likely (in 2022)

What is the Child Tax Credit (CTC)?

Similar to the Earned Income Tax Credit, the Child Tax Credit is designed to benefit working families.

It allows them to claim up to $2,000 per qualifying child via a refundable credit.

However, for 2021, you can use your 2019 earnings instead of 2020 to determine your eligibility for the Child Tax Credit.

This means that the total amount of refundable credits you can receive for qualified children under the age of 17 will go up.

Also, similar to the Earned Income Tax Credit, claiming the CTC credit may trigger a request for additional information from the IRS, which could delay your refund.

Eligibility for the Child Tax Credit

Taxpayers can claim a child tax credit of up to $2,000 for each child under age 17 who is a citizen.

However, the credit is reduced by 5 percent of adjusted gross income over $200,000 for single parents ($400,000 for married couples).

If the credit exceeds taxes owed, taxpayers can receive up to $1,400 of the balance as a refund, known as the additional child tax credit (ACTC) or refundable CTC.

Also, the ACTC is limited to 15 percent of earnings above $2,500.

The child tax credit provides a credit of up to $2,000 per child under age 17.

Furthermore, other dependents, including children ages 17–18 and full-time college students ages 19–24—can receive a nonrefundable credit of up to $500 each.

What is the Earned Income Tax Credit (EITC)?

The Earned Income Tax Credit (EITC) helps low- to moderate-income workers and families get a tax break.

If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your refund.

Who Qualifies for the EITC?

You may claim the EITC if your income is low- to moderate.

Here are the qualification rules:

To qualify for the EITC, you must:

Show proof of earned income
Have investment income below $3,650 in the tax year you claim the credit
Have a valid Social Security number

Claim a certain filing status
Be a U.S. citizen or a resident alien all year
Special Qualifying Rules

Additionally, there are special EITC rules for members of the Military, the Clergy, and taxpayers with relatives who are disabled.

For more on EITC, click here.

Here are some important facts you should know about the EITC:

2020 Stimulus and EITC

Under the December coronavirus relief package passed in 2020, you can use your 2019 or 2020 amount of earned income to calculate your tax credit for 2020.

This means that the higher the income, the larger the tax credit.

However, if you claim this credit, the IRS may request additional information, which could result in your refund being delayed.