11 May 5 Frequently Asked Questions about COVID-19 Relief Checks
Last month, the federal government began issuing stimulus payments to qualifying U.S. citizens in an attempt to prop up the economy in the wake of COVID-19. These checks come as a relief to many who are struggling financially at this time, and were just a small part of the government’s $2 trillion economic stimulus legislation. But these checks, and the wording the government has used to describe them, have left many people with questions about the funds they’re receiving. Here are 5 of the most frequently asked questions we’ve seen about these checks. We hope this article will clear up any confusion you might have.
Do I Have to Pay It Back?
This is often the biggest question on people’s minds, and it’s a natural one. After all, how many of us were taught that there’s no such thing as a free lunch? But the answer to this question is no, you will not have to repay the government. This is not a loan, but is an advance on a new tax credit, so it does not need to be repaid.
Does It Come Out of My Next Refund?
This seems to be the most widespread source of confusion for people, but the fact of the matter is that the amount you receive will not be subtracted from your next tax refund. The reason many people are confused on this point is because the relief checks are technically considered an advance on a tax credit, as we mentioned above. Of course, when we hear the word “advance” it’s natural to assume that this means we’re losing out on something later on.
However, the COVID-19 stimulus checks are an advance on a brand new tax credit that nobody has ever received before or will ever receive again. In essence, the government has said that everyone under the income threshold qualifies for an additional $1,200 per adult and $500 per dependent child on their 2020 returns. But since most people need it now, they’re issuing it now, based on your 2019 or 2018 reported income. It will not reduce any tax refund you would have normally received; you just won’t get this new tax credit a second time when you file your 2020 return.
So, why the confusing verbiage? The federal government needed to classify the checks as a tax credit in order to utilize the IRS’s payment system, which was the fastest and easiest way to distribute funds to the public. While it may have caused some confusion, it was the simplest and most effective solution to get everyone their stimulus payments quickly.
Will I Be Taxed on This Income?
No. The relief checks are considered non-taxable income. You will not have to report this income on your tax return, and it will not increase the amount that you owe when you file your 2020 return.
Will They Keep It for Unpaid Taxes?
Again, the answer here is no. If you owe on taxes to the IRS, they will not keep or reduce your stimulus check in order to pay for those taxes. Of course, we do still need to pay our taxes, and it’s important to remember that the new tax deadline of July 15, 2020, is fast approaching. So, if you’ve received your stimulus check and owe taxes, it may be advisable to use a portion of those funds to cover your tax debt before it’s past due.
The only situation in which a stimulus check will be held back or reduced is for unpaid child support. So, if you owe child support, your check may be kept or cut down to cover what you owe.
What If My Income Is Different This Year?
Another question many people have is in regards to how the government calculates your income to determine if you qualify for a stimulus check. The amount you receive begins to go down for individuals making more than $75,000, or couples making more than $150,000. It phases out completely for individuals who make more than $99,000, or couples who make more than $198,000.
But, obviously, you don’t know your 2020 income yet. So, as we mentioned earlier, they’ll be looking at your 2019 tax return (or 2018 return if you haven’t filed last year’s return yet) and using your adjusted gross income from that year to determine if you qualify and how much you’ll receive. But what if your income is different this year?
Obviously, the pandemic has taken a huge bite out of many people’s incomes this year. So, what if your 2020 income ends up being significantly lower than your 2019 income, and it turns out that you should have received a check after all? While you obviously (and unfortunately) won’t be getting that check during the peak of these difficult economic times, you will get the amount you qualified for when you file your 2020 return.
But what if the opposite happens? What if your 2019 income was low enough to qualify you for the full relief amount, but your 2020 income was significantly higher, and you shouldn’t have received any amount at all? Will you have to pay that back? The answer to that question is also no. The federal government will not be pursuing repayment of this tax credit, so you should be able to rest easy.
In essence, these relief checks are a payment to try to bolster individuals, families, and businesses alike through these difficult times, with no expectation of repayment, no threat of holding it back, and no need to pay taxes on it. We hope this article offers a bit more clarity on this matter, but if you have any other questions regarding your relief checks or need help filing your 2019 taxes, please reach out to our Provo accounting professionals here at The Accounting Guys.