The pandemic had a negative financial impact on many American households, so in 2020, the federal government gave eligible individuals multiple rounds of stimulus cheques. Many taxpayers are unsure if they need to claim these stimulus payouts on their 2021 taxes as the year draws to a conclusion. No, stimulus payments are not taxable income and do not need to be reported on your tax return, to give you the quick answer.
Technically, stimulus payments are an early payment of a tax credit for the 2020 tax year. This credit, however, is refundable, so you can still claim it even if you don’t owe any taxes. The purpose of the stimulus cheques was to offer millions of Americans who were trying to make ends meet during the pandemic urgent financial aid. As a result, the government made sure there were no tax repercussions associated with the checks.
However, if you were qualified for and did not get any of the 2020 stimulus checks, you might be able to claim them as a Recovery Rebate Credit on your 2020 tax return. This credit is meant to assist persons who either lost out on the original stimulus payments or did not get all of what they were due. The amount you get if you are qualified for the Recovery Rebate Credit will be applied to any tax refund you are due.
The IRS will start taking tax returns on February 12, 2021, for submitting your 2020 taxes. It’s crucial to remember that you can owe taxes on any unemployment compensation you received in 2020. Benefits from unemployment are taxable income and must be shown on your tax return. Additionally, you can qualify for certain deductions and credits that might lower your tax burden if you launched a business or worked as a freelancer in 2020.
As a result, stimulus payments are not considered to constitute income and do not need to be disclosed on your 2021 tax return. You might be able to claim them as a Recovery Rebate Credit if you weren’t able to collect any 2020 stimulus money. As taxable income, unemployment benefits must be disclosed on your tax return, which is another crucial consideration. Make careful to file your taxes on time in order to avoid fines and costs because the IRS will start taking tax returns on February 12, 2021.