According to the IRS, the federal government’s third stimulus check is not considered gross income and hence is not taxable.
With the start of a new year, some people have begun to examine what information they’ll need to file their taxes, particularly in light of the various economic policies enacted in 2021, ranging from the advance child tax credit to the third stimulus check.
Kathy, a VERIFY viewer, was thinking about the latter. She contacted to inquire if the federal government taxes the third stimulus cheque, which many people received in 2021. The third stimulus check will not be taxed by the federal government.
WHAT WE DISCOVERED
The American Rescue Plan, which was enacted in March 2021, produced the third stimulus cheque, formally known as an economic effect payment. Individuals who qualify for payments may get up to $1,400, while married couples filing jointly may earn up to $2,800. In addition, people may be eligible for $1,400 for each qualifying dependent. The IRS said that it had made over 171 million payments as of late July 2021.
“As a result, on your 2021 federal income tax return, you will not include the third payment in your taxable income or pay income tax on the third payment,” the IRS said on its website. “When you file your 2021 Federal income tax return in 2022, it will not lower your refund or increase the amount you owe.”
According to Jackson Hewitt, a tax preparation agency, the third stimulus cheque was actually an advance on a tax credit called the Recovery Rebate Credit. The Recovery Rebate Credit, according to the IRS, is for persons who missed the stimulus payment or didn’t get the full amount they were entitled to. The Internal Revenue Service has information about stimulus eligibility on its website.
So, how can people get their money back? They’ll have to file a tax return in 2021 and indicate how much stimulus money they got.
The Recovery Rebate Credit is a section on the tax form, according to the Center for Budget and Policy Priorities. This section of the worksheet compares the amount of money a person received to the amount they should have received.
The federal government will then either add any missing funds to your taxes or provide you with a refund.
But what about those whose salary was higher in 2021 and who no longer qualify for the stimulus payment they received? They don’t have to pay back the difference, according to the IRS.