Coronavirus stimulus payments have already begun showing up in bank accounts, and more Americans will be seeing them soon.
As people continue to receive checks due to the COVID-19 pandemic, many may be wondering if it will impact their taxes? Others may be questioning if they will need to pay taxes on it.
Eric Bronnenkant, head of tax at financial services firm at Betterment, told USA Today that this topic is on a lot of people’s minds. Bronnenkant said that taxpayers who have not filed their 2019 returns yet are also wondering if they should file now. Some are considering if they should wait closer until the delayed July 15 tax deadline.
Tax experts, including Bronnenkant, say people would not have to owe taxes on their stimulus payments because the checks are not considered income, but instead, prepaid tax credits on people’s 2020 tax returns. As a result, Americans will not need to set aside money from their checks to pay the IRS in 2020.
The confusion around these payments may stem from the fact that they were originally dubbed “recovery rebates for individuals” in last month's $2 trillion stimulus package, a vague term which then changed to the still amorphous Economic Impact Payments.
While they won't be taxed, these Economic Impact Payments are advances on credits for your 2020 taxes, which you will need to reconcile when you file for taxes next year, according to Christina Taylor, head of operations at Credit Karma Tax.
“I have no doubt they could have made the entire process simpler, but that would take the fun out of it and put me out of a job," Bronnenkant joked to the outlet.
If your income increases next year beyond the $75,000 or $150,000 thresholds for the payments, you won't need to pay back your stimulus checks, experts say. But at the same time, if your income drops in 2020, it is possible taxpayers could see bigger tax refunds, a likely situation for many as a record 22 million taxpayers filed for unemployment in the past month.
“It won't negatively impact your refund, but it could positively impact your refund,” Bronnenkant says.