Demystifying your stimulus check and taxes
"Do I have to report my stimulus payments on my tax return"? "Are my stimulus payments going to be taxable"?
The stimulus payments (or economic impact payment, as the IRS calls it) are essentially an advanced payment of a newly- formed tax credit for 2020. Some people assume that the IRS will add the amount to your income, generating a bigger tax bill, or reduce your tax refund when you file your tax return this year. These assumptions are false.
So here's the deal. When filing your tax return this year you will in fact need to report the amount of stimulus payments received for both first and second rounds. The amount of payments you report will be used strictly to calculate whether you received enough. If, based on your 2020 tax return, you qualify for more of the stimulus the extra amount will be added to your refund. And here's the best part. If based on your 2020 tax return you received too much, you will not have to pay a dime of it back. So essentially it is a win-win. These payments are NOT treated as income NOR taxable in any way. In addition the payments will NEVER reduce your refund, as they can only be used to increase your refund.