Americans should have received two rounds of stimulus payments in 2020 if they met certain income restrictions. The first round included a payment of up to $1,200 per adult plus an additional $500 per child. The second round was for $600 for each adult and child. Only individuals with annual income below $75,000 qualified for the payments (or $112,500 if you file your taxes as “head of household”). Married couples still qualified if their joint income was under $150,000.
However, some individuals did not get their payments or only got partial payments for one reason or another. As you work on your 2020 taxes, there are a few things that you need to know about the interplay between your income taxes and your 2020 stimulus payments.
Got a legal question?
Get legal advice in minutes. Real Lawyers. Real Answers. Right Now.
Will I owe taxes on the economic stimulus payments I received from the federal government during the COVID-19 pandemic?
The IRS does not consider the COVID-19 stimulus checks income, which means that the extra amounts you received will not be taxed. The government classifies them as “prepaid tax credits,” so they do not trigger any additional income tax obligations.
In fact, you may not even need to note the amounts on your tax returns. However, many tax software programs will include a question about your stimulus payments, but this will not add it to your income. Instead, it is to ensure that you got the right amount of stimulus payments. If you were underpaid, then you may get the Recovery Rebate Credit as part of your refund.
Thankfully, if your payments were higher than they should have been based on your income in 2020, you are not required to return the money.
States are also not allowed to tax your stimulus payments. However, the payments might indirectly affect your state income taxes. A few states allow deductions for your federal income taxes paid. So if the stimulus payment offsets how much federal tax you pay, that can decrease the state income tax deduction you may have. The result is an increase in your state tax obligations.
This scenario occurs in just a few states, including:
Other states do not allow for this deduction or do not have state income taxes. As a result, the stimulus payment has no effect on state income tax obligations at all.
Will the stimulus check affect my tax refund?
Maybe. Your stimulus check technically will not affect your normal tax refund—but the total amount you get from the IRS may be higher. Because your stimulus payment is not taxed, it is not considered when calculating your tax refund.
Instead, the IRS asks taxpayers to report the amount of their stimulus payment to ensure that you got as much as you should have based on your income and filing status for 2020. The IRS used 2019 information to determine whether stimulus payments should be issued, and if you had some changes in 2020, the IRS wants to be sure that you got your full payment based on 2020 information.
The result is that you may have an increased refund amount if there was an underpayment of your stimulus amount. The difference between your normal refund and your increased refund because of the stimulus payments is being issued as a tax credit, known as the Recovery Rebate Credit.
This payment will not affect your normal tax refund, but it is included in your tax forms and paid as part of your refund payment. This additional credit is only available to those who should have received a higher payment when the economic stimulus checks were issued.
What is the Recovery Rebate Credit and how is it related to stimulus checks?
The Recovery Rebate Credit is the name of the tax credit that is being used to ensure that each person got the full amount of their Economic Stimulus Payment. If you did not receive the full amount you were entitled to receive during 2020, then the Recovery Rebate Credit is being used as part of your tax return to make up the difference. As a result, your refund may be higher this year if you did not receive the full amount of your stimulus payment during 2020.
When can I expect my tax refund in 2021?
The IRS delayed their normal start day for processing tax returns to February 12, 2021. This means that getting refunds will also be delayed compared to previous years. The IRS indicates that using electronic filing will speed up processing.
The IRS also notes that those who have the Earned Income Credit and Additional Child Tax Credit can expect refunds to start being issued the first week of March for those who file their tax return as soon as processing starts in February.
Most taxpayers will receive their refund within 21 days of filing electronically, assuming there are no errors or other issues with their return.
It is important to note that although the start date for processing returns was pushed back, the end-date to file your return has not changed—it is still April 15 for most taxpayers.
Ready to learn more?
You can get answers to your specific questions about how tax laws might affect your particular situation by talking to a Rocket Lawyer On Call® attorney. Rocket Lawyer personal finance documents can also help you plan your finances for 2021 and beyond.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.