There are many stimulus check myths out there creating confusion and fear for members. Be able to answer all of their questions to give them peace of mind.
As part of the CARES Act, the federal government began sending stimulus payments to millions of Americans in April. These payments were supposed to help people pay their bills and boost the U.S. economy during the lockdown conditions of the coronavirus pandemic and ensuing business slowdown. Even before the checks began arriving in mailboxes and directly into bank accounts, rumors and confusion abounded regarding how this money would affect Americans’ taxes.
The first thing to know is that a stimulus check—officially called an “Economic Impact Payment” by the IRS—won’t increase the taxes a member owes—it’s not taxable income—or reduce their refund. They will not have to repay the stimulus money.
Now let’s take a deeper dive into how these EIPs work in relation to taxes.
They’re a tax credit for tax year 2020
One of the reasons the myths about the EIPs increasing taxes owed or reducing tax refunds might have started is because the EIP money is related to taxes: the stimulus payments are tax credits for the 2020 tax year. Unlike other federal tax credits (sometimes called ‘tax rebates’), members are receiving it now instead of waiting until they’ve filed their 2020 taxes next year.
A quick refresher that might be helpful to share with your members—a tax refund occurs when a person overpays on their taxes and the government owes them money back; a credit reduces the taxes you owe. Either way, you’re keeping more of your money, but they do work differently, and it’s important to know your stimulus payment is a credit.
For example, a member will owe the federal government $1,200 less if they’re a single filer earning less than $75,000 a year. Whatever the amount of their EIP, they will owe that amount less in taxes next year.
How EIPs were calculated based on past tax returns
The federal government used federal tax returns for 2018 or 2019 to calculate the amount of a person’s stimulus check, whichever was the latest tax year they had on file. If their income is lower in 2020 than in their latest-filed taxes, they could be eligible for a credit on their 2020 federal tax return, but they wouldn’t receive it until 2021 after they’ve filed. If their income increased in 2020, they won’t need to pay back the EIP money and they won’t lose any 2019 or 2020 tax refund. If a member can claim a dependent on their 2020 tax return that they couldn’t claim in 2019, they should get a $500 EIP (per dependent).
Those who weren't required to file 2018 or 2019 federal tax returns, like Social Security recipients, railroad retirees and military veterans, should automatically receive a $1,200 stimulus check. If they don’t receive federal benefits and did not file 2018 or 2019 tax returns, they can qualify for a stimulus check by using the IRS tool for non-filers, or by filing a 2019 return if they earn nontaxable income or do not make enough money to normally submit a tax return.
If a member doesn’t get a stimulus payment this year for some reason, they can still claim it when they file your 2020 tax return. If they owe money in back taxes or have defaulted on federal student loan debt, their EIP should not be garnished and they should still receive it. The federal government can take all or part of a stimulus payment if a member is overdue on child support payments.