At a time when most Americans are waiting for another round of coronavirus stimulus checks, there are a few misconceptions surrounding the first round. One of the most common misconceptions is that many believe they will have pay back the coronavirus stimulus checks to the government sometime later.
Coronavirus stimulus: you don’t need to pay it back
A recent survey from TD Ameritrade found that about 32% of Americans believe that they will have to pack back the coronavirus stimulus in the next tax season. This is not true at all. You will not be asked to pay back the amount.
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The stimulus checks are a federal tax credit that the government gave to help people meet their expenses amid the coronavirus outbreak. So, you don’t have to pay it back, and it won’t even lower your tax refund for the year.
In fact, there are chances that you may get more money when you file your 2020 taxes. As you will be aware, the stimulus checks were based on the 2019 or 2018 returns, but they are technically credits for 2020 taxes.
How might it affect your tax return?
In case it turns out that you were eligible for a bigger credit on the basis of your 2020 adjusted gross income (AGI), then you will receive the difference, if any, next year.
“If a taxpayer’s income drops in 2020, they will be eligible for any remaining rebate credit they were not able to claim using their 2019 or 2018 return,” the Tax Foundation says.
On the other hand, you will not have to pay any amount back if your 2020 AGI is more than the AGI for 2019 or 2018.
“If the amount of a credit a taxpayer qualifies for in 2020 is less than it was based on their 2019 return, it does not have to be paid back,” says the Tax Foundation.
Similarly, if you didn’t qualify for the stimulus payment at all on the basis of your prior year's income, but you do qualify for it on the basis of your 2020 income, then you can claim the stimulus payment as a credit on your tax return for 2020.
No tax on stimulus checks
Now that you know you don’t have to pay back coronavirus stimulus checks, you should also know that you don’t have to pay any tax on the stimulus check amount as well. These checks are not taxable income, rather are structured as refundable tax credits. This is the reason why even those who do not generally file tax returns were eligible for the stimulus checks.
One major reason why many people have such tax-related confusion is that the official term used by the IRS and Treasury for direct payments is "economic impact payments." Such a name does not suggest that the stimulus payment is any type of tax credit.