Stimulus Payments Won’t Cut Into Your Tax Refund
In March 2020, the Federal Government passed the CARES Act. This act, a result of the massive COVID-19 pandemic that has infected over one million Americans, was responsible for the establishment of a variety of federal aid designed to assist individuals throughout the country in getting through unemployment and the ongoing pandemic.
The most well-known component of the CARES Act was its direct cash payment. These payments, which began to be sent in April, supplied individuals with $1,200 if they had previously filed as individuals making up to $75,000, $112,500 if they filed as the head of households or $150,000 if they filed jointly. It also provided $500 per dependent child.
The vast majority of Americans qualified for these payments, the largest direct payments ever issued by the federal government as part of a stimulus program. However, because of the newness of the program, the suddenness with which it was implemented, and a variety of questions and confusion surrounding the COVID-19 pandemic, many were confused by this process.
One of the biggest sources of confusion was whether or not people would have to pay back the stimulus payments.
So, do I have to pay back the stimulus?
No. Unlike other stimulus programs – like some of the ones passed in the aftermath of the Great Recession – you will never have to pay this one back. It is not a governmental loan.
Got it! Will it cut into my tax refund next year?
No! The money is yours, free and clear. Indeed, the bill is very clear on this: You do not have to pay it back. It is yours and not any sort of tax credit or advanced refund. Furthermore, the income you receive from your stimulus payment will not count as income against your federal, state or local taxes. Your tax refund next year will be completely unaffected by this stimulus program. Indeed, a variety of the other changes in the CARES Act, like those that removed the 60% of AGI limit for charitable contributions may wind up giving you a bigger refund than you are used to. Due to these provisions, and others, the CARES Act is actually likely to expand your refund.
So why do so many people think this is the case?
The language of the bill led to some confusion. The direct payment was written as an “advance tax credit,” which was the legal and financial mechanism by which the stimulus money was paid. The stimulus money was actually a payment that you received via the Internal Revenue Service. However, the legal structure of the tax credit led to somewhat confusing interpretations. Fear not, however: It was written this way to make it easier for the IRS to pay the money. You won’t owe anything additional next year, and your refund will be unaffected by the stimulus payment.
Also not helping this interpretation was certain viral posts on social media that claimed the government was scamming you into owing more in taxes next year. Needless to say, they were wrong. Make sure you get your news from reputable news sources!
