For many Americans, stimulus payments are a vital part of surviving the COVID-19 pandemic. But how will they affect your taxes? Will there be any surprises when you file your income taxes in April? Here are some answers.
Are Stimulus Checks Taxable Income?
Stimulus checks are designed to help boost the economy during particular bad economic slumps. For this reason, taxing them less than a year later would be counterproductive. If Americans need extra money for food or rent, they can't afford to pay extra taxes on it soon afterward. Stimulus payments, then, are not generally taxable income you would report the following spring. The IRS will not send any reporting forms regarding these and you won't list them as income on Form 1040.
Can You Get More than One Check?
Each round of current stimulus payments should consist of all your allocated funds in the form of one lump sum. While rare exceptions exist (such as if a taxpayer informed the IRS of a change in circumstances), these are not at this time recurring checks. However, this doesn't mean you can't get money from future rounds of payments. In December 2020, for instance, Congress authorized a second round of stimulus payments as part of a coronavirus pandemic aid package. Most of these checks will go to the same individuals and families who received the first checks. Neither is expected to be taxable in 2021.
What If Your Check Was Wrong?
With so many checks to send out and a huge amount of taxpayers, not every payment will be correct. If your check was calculated incorrectly — such as those who didn't receive payments for dependents — or you failed to receive your payment entirely, you can still correct the matter when you file income taxes.
Additional lines are added to Form 1040 so that you may report the correction and receive any additional funds that apply. For taxpayers who suffered disappointment during any round of payments and weren't able to get a resolution during the year, this will be a welcome surprise in the spring. They may, therefore, want to file income tax forms as early as possible.
Where Can You Learn More?
Stimulus payments can only help Americans if they are correct and if they avoid any negative tax consequences. The best way to ensure this in your case is to meet with a tax preparation service in your state as soon as possible. They can help you find answers to your specific questions and understand how to receive the maximum government aid you can. Make an appointment today to get started.
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