The $ 2 trillion stimulus bill that authorized direct checks to millions of Americans is a sprawling and complicated piece of legislation â true story.
Stimulus checks are starting to pour into Americansâ bank accounts, but so are some misunderstandings on the rules for the money.
The âpay backâ myth is one of them, aided by erroneous social media posts, but there are other misconceptions and questions out there about the payments that lawmakers hope will help Americans get through the coronavirus outbreak.
Here are some:
Do I have to pay the stimulus money back?
No. Full stop.
The âeconomic impact paymentâ you receive depends on how much money you make, according to either your 2018 tax return or your 2019 tax return. The 2019 return is the one that everyone has until July 15 to submit.
Individuals with adjusted gross incomes below $ 75,000 will get $ 1,200 and married couples with adjusted gross incomes below $ 150,000 will get $ 2,400. Additionally, the government will pay $ 500 for every qualifying child under age 17. The stimulus payments decrease $ 5 dollars for every $ 100 dollars above the $ 75,000/$ 150,000 line and ends entirely for individuals making more than $ 99,000 and couples making over $ 198,000.
When the IRS determines your payment amount, it looks at the adjusted gross income listed on the 2019 tax return. If thatâs not on file, the IRS looks at whatâs on the 2018 return.
You can find the status of your stimulus payment using an IRS tracking tool. If the IRS doesnât have your direct deposit information on file, you can also get the money sooner by submitting your banking information. Thatâs opposed to waiting for a paper check to arrive in the mail. Read more about that process here.
Some of the confusion may lie in the paymentâs technical terms. The stimulus checks âare considered an advance refund of a 2020 tax credit, not a loan,â said Neal Stern, a member of the American Institute of CPAs Financial Literacy Commission.
Breaking that down, Stern said itâs a sum of money the feds are crediting to taxpayers for next tax season â except they are paying it right now, because millions need it right now.
Remember that this is technically a 2020 tax credit. Thatâs important for later, especially for people who might not qualify for the stimulus money now.
Does my stimulus money get applied to my tax bill if I owe taxes?
No, the IRS wonât automatically shave off your stimulus money to pay down your tax bill. Thatâs something the federal tax collector says itself in a link on frequently asked questions about the stimulus money.
Thereâs one exception. If you are behind on child support, the IRS says it will offset the stimulus check amount by the past-due child support amount.
Of course, you still need to pay your taxes. So if you owe, you may need to spend your stimulus money on taxes at that point. But the deadline to pay federal income taxes is July 15, and the feds can work out installment plans.
Another important thing to remember is that while the IRS may not take money from a stimulus payment, a private debt collector might immediately try to seize it. There are ways to avoid garnishment, experts say.
Will my stimulus payment reduce the tax refund I would normally get?
Again, no. âYouâre going to get the refund you qualify for, and this check,â Stern said. âThe refund you get for the normal operation of the tax code hasnât changed.â
Your tax refund is the money returned to you because youâve overpaid taxes throughout the year. The stimulus check is a payment thatâs separate and apart from your tax obligations, the IRS explained.
â Stimulus checks âwill not reduce your refund or increase the amount you owe when you file your 2020 tax return next year.â â
âIt will not reduce your refund or increase the amount you owe when you file your 2020 tax return next year,â the agency said.
Is my stimulus check taxable income?
No. When you win the lottery or collect certain legal settlements for example, the IRS will factor those income sources into what youâve made during the year, and that can bump you to a higher tax bracket with a higher tax rate. But that wonât happen here.
âThe payment is not income and you will not owe tax on your payment,â the IRS said, adding that the money also âwill not affect your income for purposes of determining eligibility for federal government assistance or benefit programs.â
There are also rules on the stimulus money when it comes to bankruptcy, a legal process where indebted consumers pay back their creditors. Judges will not consider the money as income when people apply for a common form of bankruptcy. And if someoneâs in a bankruptcy caseâs repayment plan, the stimulus check doesnât count as âdisposable incomeâ that could be applied to things like credit card debt.
I made too much money in 2018 and 2019, so I wonât be getting any stimulus money, right?
Hereâs where itâs important to remember the stimulus money is, technically speaking, a tax credit for the 2020 tax season.
If someone didnât qualify for the payment now, they may still be eligible for the payment during the 2020 tax season, which happens in 2021, Stern said â so long as they make below the income limits.
The coronavirus outbreak is, regrettably, derailing the earnings for many people. More than 22 million people have filed for unemployment benefits in the past month and economists worry a recovery will be slow going.
So if a person doesnât qualify for a stimulus payment money now, they might, come next tax season. Everyone else whoâs already received their stimulus check wonât get a second check, Stern said.
Hereâs another scenario to keep in mind.
Say someone made below the $ 75,000/$ 150,000 income threshold in their 2018 return but their 2019 earnings turned out to be exceed that amount.
If they receive the stimulus money and submit their 2019 tax return afterwards, the IRS wonât turn around and ask for the money back, according to Rob Seltzer, a Los Angelesâbased financial planner whoâs the president and founder of Seltzer Business Management.
âThey are not going to claw it back,â he said.