Unless you’ve been in a cryostasis you’re probably well familiar with COVID-19, the destroyer of 2021 and 2020. COVID-19 shook up the financial markets in a big way and this paved the way for stimulus payments to be issued. Which, for those who don’t know were issued to help the economy by encouraging consumer spending. The concept of a stimulus payment is nothing new. In fact during the Great Recession of 2008, $500 checked were issued to Americans to stimulate the economy.
What are stimulus payments and are they taxable?
In addition to the 2 payments made in 2020 there was an additional payment made in March of 2021. This payment was for $1,400 per individual ($2,800 if married filing jointly) and $1,400 per dependent up to a certain limit. Also it remains to be seen for how long this virus and it’s economic effects will stick around. And whether or not additional assistance is needed to stimulate consumer spending.
As is the case with IRS laws, people don’t really have a good understanding what is taxable and what isn’t. This has caused folks to ask “Are these payments taxable?”. The extremely short answer is no, these payments are not taxable. The reason for this is because these payments are not actually income. It may seem strangle to not consider these payments income, but instead, per the IRS these payments are tax credits.
Stimulus payments as a refundable tax credit
So for those who don’t know a tax credit is very good. Most are familiar with a tax deduction, which reduces your taxable income, and that in most cases, is very good. However a tax credit is miles better, because it directly eliminates the taxes at the end of your 1040. This also means that if you didn’t receive the stimulus payment for whatever reason, you can claim it as a credit on you taxes. But wait there’s more! This credit is also a refundable credit, which is fantastic. This means you can claim a refund on tax credits over your tax liability. For example if you owed $1,000 of taxes and has a $1,200 refundable credit, you would then have a refund of $200 from the IRS.
Conclusion
In conclusion to simply put, your stimulus payments are not taxable income. Not because of some tax loophole, but because the payments themselves are not consider income. As I discussed earlier they are considered refundable tax credits. This means you can claim them on your taxes as credits if you didn’t receive the check for whatever reason. Also this means your credit is not limited to your tax liability. If you have any questions about these payments contact a qualified CPA, to help guide you through this tax question and others.