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Sunday, July 25, 2021

Stimulus Check: Is The 3rd One Taxable?

One of the biggest questions that have come up during this pandemic is if your stimulus check is taxable or not. According to the tax code, you will definitely have to pay taxes on every form of income no matter where the source derives it from- unless it is specifically exempted. Now, it goes without saying that this is quite a broad definition that should technically involve money received from the government. While this implies that your stimulus payment should be taxable, it doesn’t necessarily need to be. 

There is a certain loophole in the existing law that should stop you from paying taxes on your stimulus check. Interestingly, the stimulus check you receive isn’t just your income according to the law. This is simply an advance payment made on a tax credit- which exempts it from being taxable. 

2020 Recovery Rebate Tax Credit on your Stimulus Check

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When you go ahead and file your federal income tax return for the last year, you are going to find a new line on your Recovery rebate credit. You might as well pay close attention to that line- especially if you haven’t received your first or second stimulus check yet.

This would also be important to you if you are married and your spouse or you don’t have a Social Security Number, or if your income went down last year. If you find yourself eligible for a stimulus payment, this credit would really help you save quite a lot of cash. 

This is because your credit amount and your stimulus check are calculated in pretty much the same way. Interestingly, the first couple of stimulus payments were based on information from the tax return of the last three years. The tax credit is quite simply based on the tax return of 2020. Therefore, if you fail to file your tax returns for 2018 or 2019, the result in the ensuing difference would be the difference in the amount of your credit and your stimulus payment.

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