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Monday, September 26, 2022

Stimulus Check Update: Is It Taxable?

One of the most frequently asked questions is- does one have to pay taxes on their stimulus check payment? The official tax code states that one has to pay taxes on every income from whatever source derived- unless it was specifically excluded or exempted. This does seem to be pretty broad definitely which would include money from the federal government. Also, there doesn’t seem to be any specific exemption or exclusion for such a stimulus payment. All this would imply that stimulus payments were taxable- right? No. 

Stimulus Check Payments Are Not Taxable

As it stands, there is a loophole in the law that would prevent one from ever having to pay taxes on the third-round stimulus check money that one would receive from Uncle Sam. The third stimulus payment, surprise surprise, isn’t income after all as stated under the law. Rather, it is just an advance payment of a tax credit. And as we all know, tax credits aren’t taxable income. 

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When you start filing your federal income tax return for 2021 this year, you would be able to see a line on the second page for the option of Recovery rebate credit. You should pay close attention to this line, especially if you haven’t received a full stimulus check payment when your income dropped in 2021, or you had a recent addition to your family. 

The third stimulus check payment, as well as the credit amount, would be calculated in exactly the same way. However, you also need to realize that your stimulus payment was based on the information secured from your tax returns of either 2019 or 2020. The tax credit is, again, based on what you have put down on your tax return for 2021. So, the failure to file your tax return for 2019 and 2020 would reflect a change in your final amount.

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