Editors Note: The video attached to this article has been updated to better clarify the connection between your 2020 taxes and the stimulus checks.
Viewer Lynn-Dee Horowitz sent VERIFY a question recently about the coronavirus stimulus payments that most Americans will be getting soon.
She asked, "is the stimulus check an advance for taxes 2020?”
VERIFY has been getting lots of questions about the payments, including a number of emails wondering if you have to pay taxes on the stimulus checks.
So let’s break those questions down.
Are the stimulus payments an advance of credit for 2020 taxes? And do you have to pay taxes on them?
Yes, the one-time stimulus payments stemming from the CARES Act are technically advanced refunds on a tax credit that qualifying taxpayers will receive for 2020. That basically just means that the CARES Act lowers your tax liability according to your financial status and rather than getting a larger refund in 2021, the IRS is sending you part of that refund now.
Since this money is essentially a tax refund, it is not taxed.
WHAT WE FOUND:
The CARES Act, which Congress passed and President Donald Trump signed in late March, includes stimulus money for multiple businesses and a large chunk to help American taxpayers.
We’ve previously covered who qualifies for the money in the legislation and who doesn’t.
To briefly recap, the bill uses your 2018 or 2019 tax returns to determine if you qualify for a payment based on your income.
At the base level, adults who filed taxes get $1,200 each and an additional $500 for each child under the age of 17.
That number decreases if you make more than $75,000 individually or $150,000 for joint filings.
A person won't receive any money if they make more than $99,000, or $198,000 for a couple.
OK, the big question: Are we going to have to pay this back?
No. This money is essentially your tax money for next year that the government is just giving back to you early.
The act itself calls these an “advance refund.” That’s a tax credit they’re paying you now.
On page 144 of the CARES Act, it states: “there shall be allowed as a credit against the tax...for the first taxable year beginning in 2020.”
It’s easier to explain using numbers. The following is an example based on someone filing independently who makes $50,000 in income and overpaid their taxes by $1,000 dollars.
So suppose you expect (for 2020) to have $50,000 in income. That means you’d owe about $4,300 in taxes. If you paid extra each month and withheld a total of $5,300, you’d get a $1,000 tax refund.
With the CARES Act, you receive an additional “credit” for $1,200 and your tax liability is lowered from $4,300 to $3,100. Now, you would expect a $2,200 refund ($5,300 paid minus the $3,100 owed). Instead of paying you $2,200 after taxes in 2021, the IRS is sending you a $1,200 check now, so your actual refund at tax time is still $1,000.
Since this is essentially an early tax refund on taxes you will pay in 2020, you don’t have to pay it back and as Senator Dianne Feinstein’s office confirmed, it is not taxed.
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