Do I Have to Pay Taxes on My Stimulus Check?

The federal government sent CARES Act stimulus checks to Americans in ​April 2020​, ​December 2020​, ​January 2021​ and ​March 2021​. The last two payments fell in the ​2021 tax year​, the return you'll file in 2022. Many people believe that the IRS will consider the checks as an addition to gross income, which means they'll owe more taxes or have their tax refund reduced. Neither of these assumptions is true.

Let’s clear up several questions and misconceptions about the coronavirus stimulus payment.

According to the IRS, the stimulus payment from the CARES Act is not considered to be taxable income, and taxpayers will not have to pay tax on it. Technically, the economic impact payment is a tax credit, but this isn't clear to most people.

The stimulus checks are considered as fully refundable tax credits for ​2020 and 2021.​ This means the stimulus checks aren't included in gross income and they're subject to taxation. The payment will not reduce a tax refund or increase the amount a taxpayer may owe on their ​2020 or 2021​ tax returns.

​Read More​: Do I Have to Pay Taxes on My Economic Impact Payment?

A deduction on your tax return is a good thing, but a refundable tax credit is even better. A typical tax credit can reduce your taxes owed to zero, but it can't create a tax refund. A refundable tax credit can.

Suppose you completed your tax return to realize that you owe the IRS ​$800​. Now you realize you can go back and claim a refundable tax credit of ​$1,200​. The credit would pay that $800 and the IRS would give you a tax refund check of ​$400​ for the difference.

The beauty of a refundable tax credit is that you get the benefits of the money from the credit immediately rather than having to wait to claim it when you file your tax return.

There’s no need to worry about setting aside a portion of your stimulus check to pay taxes.

​Read More​: Do I Need to File Taxes If I Didn't Work?

The government used your federal income tax return for ​2018 or 2019​ to determine your eligibility for receiving a stimulus check. The income reported on your ​2019​ tax return determined your stimulus payments. The IRS relied on your ​2018​ return to determine your stimulus check if you hadn't yet filed a ​2019​ return.

The IRS won't force you to return the stimulus money if your ​2020​ or ​2021​ income was higher than it was in ​2018 or 2019.​ You won't owe any taxes on the check. This would be true even if your income in ​2020​ or ​2021​ goes above the ​$75,000​ threshold. You won't forfeit any tax refunds in future years, either.

​Read More​: When Can I Stop Filing Income Taxes?

Some military veterans, railroad retirees and Social Security recipients aren't required to file tax returns. But they're still entitled to receive a ​$1,200​ stimulus check that does not get reported and will not be taxed.

You won’t owe the IRS any taxes on your stimulus check, but there are some other issues you may want to consider going forward if more stimulus checks should be coming. The IRS is entitled to take part or all of your stimulus payments if you're past due on making child support payments. Or you might have to turn the money over to a debt collector if a judge has ordered you to make payments through the courts.

Another possibility is that a bank could seize your stimulus check if you're past due on an auto loan, a personal loan or even have an account overdrawn at the bank. The bank does not need a court order to confiscate your funds in these cases.