Getting a payment won't mean a higher tax bill for 2020, but the amount of your stimulus money could ultimately change.
In mid-April, the government began sending out direct payments to Americans as part of the larger coronavirus stimulus package. While the money was much needed by those who lost income as a result of the pandemic, many are wondering whether there’s a catch. Will the money be taxed later? Is it simply a tax refund advance that will need to be paid back next year?
A tax credit is not actually income. Instead, it’s a specific amount of money that taxpayers are allowed to deduct from total taxes owed. Unlike tax deductions, which reduce your taxable income, credits are a dollar-for-dollar reduction in your overall tax bill. And since tax credits are not income, they can’t be taxed as such.
Now let’s come back to reality where the stimulus does exist and you’re eligible for the full $1,200 payment. In this case, the refund reflected on your 2020 tax return would be $2,200 . However, the government already sent you that extra $1,200 in advance in the form of a stimulus check. Your stimulus check amount could change based on 2020 tax info.Even though you won’t have to pay income taxes on your stimulus check, you will still need to report that you received one. Jaeger noted that since stimulus payments are currently being calculated against a prior year tax return , the amount you ultimately receive will be reconciled against your 2020 tax information when you file next year. There are three scenarios that could potentially come of that, he said.
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