With over 160 million stimulus payments sent with the first round of pandemic relief efforts, many in receipt of the payments are asking whether the payments are taxable or not. The IRS has clearly stated that stimulus payments, regardless of income or status, are not taxable.
For those that did not receive a stimulus payment in 2020 but believe that they were due one, a filing for the Recovery Rebate Credit can be done. In essence, anyone who didn’t get a check can request a tax credit for the amount owed. A tax credit is considered better than a tax deduction since a tax credit directly credits, or reduces, taxes owed. For example, if someone was due a $600 stimulus payment and never received it, then they can claim that $600 as a credit against any taxes owed. In order to calculate and determine eligibility for the credit, the IRS has created a Recovery Rebate Credit page available at https://www.irs.gov/newsroom/recovery-rebate-credit.
The IRS notes that a tax return for 2020 needs to be filed in order to claim the Recovery Rebate Credit, even if someone doesn’t normally file. Economic Impact Payments were based on 2018 or 2019 tax year filings, while the Recovery Rebate Credit is based on the tax year 2020 information. The IRS is sending IRS Notice 1444 for the first round of payments in 2020, and mailing a second IRS Notice 1444-B for the second round soon. Both would be used when filing for a Recovery Rebate Credit.
Source: IRS.gov, www.irs.gov/newsroom/recovery-rebate-credit
Disclaimer: The information published herein is provided for informational purposes only, and does not constitute an offer, solicitation, or recommendation to sell or an offer to buy securities, investment products, or investment advisory services. All information, views, opinions, and estimates are subject to change or correction without notice. Nothing contained herein constitutes financial, legal, tax, or other advice. The appropriateness of an investment or strategy will depend on an investor’s circumstances and objectives. Please consult your advisor about what is best for you.