The stimulus payment is technically a tax credit
The economic impact payment, as the IRS calls it — reduces your income, which reduces the amount of tax you owe. To illustrate this, if you had $50,000 in income and had a $5,000 tax deduction, your deduction would reduce your taxable income by $5,000.
Do I need to pay taxes on my stimulus checks?
Stimulus payments aren’t taxable, you don’t have to pay income tax on the economic impact payments. But they could indirectly affect what you pay in state income taxes in a handful of states, where federal tax is deductible against state taxable income.
Also important to note is that you don’t need to include information about the payments on your 2020 tax return, the Internal Revenue Service says.
If they don’t owe you any more money, you don’t have to do anything,” said Daniel Ahart, chief tax officer at the tax preparation company Daniel Ahart Tax Service®. “However, if you were eligible for the payments and didn’t receive them for some reason — or didn’t receive the full amount — you can still get the money by claiming a “rebate recovery” credit on your 2020 tax return.To determine the credit, filers complete a one-page worksheet (or walk through the steps with your tax preparation specialist), then report the amount on their tax return. To do that, you’ll need to know the exact amount of any payments you received. You should have received a receipt — Notice 1444 for the first round and Notice 1444-B for the second round — detailing the payments. See more details below:
- Notice 1444-A, You May Need to Act to Claim Your Payment – Last fall, the IRS mailed this letter to people who typically aren’t required to file federal income tax returns but may qualify for the first Economic Impact Payment as part of the IRS effort to get the payment to eligible individuals.
- Notice 1444-B, Your Second Economic Impact Payment – Unlike the Notice 1444, the law that authorized the second payment gave the IRS more time to mail Notice 1444-B to individuals who were issued the second payment. This means they may have received the second payment several weeks before receiving a Notice 1444-B. Taxpayers who received Notice 1444-B but did not receive the second payment, see the FAQs about what to do if their second payment is lost, stolen, destroyed or has not been received .
- Notice 1444-C, Your 2021 Economic Impact Payment – Later this year, the IRS will mail this letter to people who received a third Economic Impact Payment. This letter should be kept with tax year 2021 records.
Now, the (possibly) bad news is that unlike stimulus payments, jobless benefits are taxed by the federal government as ordinary income. So, schedule a consultation with your tax experts now, if you want to learn more about not ending up with a smaller refund.
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Daniel Ahart Tax Service®
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Peachtree City, GA 30269
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