Tax Implications For Stimulus Checks And Unemployment Benefits

Thanks to the CARES Act, over 80 million Americans got a stimulus check. But what are the tax implications for stimulus checks and unemployment benefits?

The stimulus check details are as follows:

  • Individual taxpayers will be receiving a $1,200 payment.
  • Couples will receive $2,400.
  • If you have a qualifying child (16 and under), each child will add an additional $500.
  • Once taxpayers reach an adjusted gross income threshold of $75,000 ($150,000 couple) the refundable tax credit begins to phase out at a rate of $5 for every additional $100 above the limit. Once income reaches the level of $99,000 ($198,000 couple), the credit is phased out completely. 
  • Payment is based on your adjusted gross income for your most recent tax filing, either 2018 or 2019.
  • You do have to have filed taxes for 2018 or 2019, unless you receive a Form SSA-1099 Social Security Benefit Statement or a Form RRB-1099 Social Security Equivalent Benefit Statement.

Let me address the most common questions about the stimulus check.

Tax Implications For Stimulus Checks And Unemployment Benefits

1) Will I have to repay the stimulus check?

No you do not! The stimulus check is really free money for the government to spend how you wish. Even some retired millionaires are getting stimulus checks because the checks are based off income, not wealth.

This stimulus measure is essentially a refundable tax credit, which acts like a refund owed that you get in advance of filing your 2020 taxes. 

2) Is the stimulus check taxable?

The stimulus payment is NOT taxable because it is not earned income.

Think of the stimulus check as a bonus tax refund that you're receiving early for 2020 taxes. 

The stimulus check will not increase your taxable income, and you will not have to pay taxes on it or repay it. Say it again with me, FREE MONEY!

3) Can I still get the stimulus check if I don't qualify based on my 2018/2019 returns?

Sorry, if you made more than the income limits, you are NOT eligible for a stimulus check. In a way, it stinks, as some families of four are getting a nice $3,900 stimulus check for free.

But in another way, you should celebrate for making above the income thresholds. Hopefully, you have stock investments and real estate investments that are going up as a result of all this government intervention and support.

There is some good news. If your 2020 income goes down and ends up being below the income phaseout limits of the credit that are shown above, you will be eligible full credit in 2021 when you file taxes.

4) Will I have to repay the stimulus check if I earn too much in 2020?

No you do not. First of all, the chances are low that you will make more in the 2020 coronavirus-induced recession versus in 2018 or 2019. Second of all, Congress really is trying to put free money into millions of American's bank accounts.

5) Do I have to pay taxes on the extra $600/week in unemployment benefits?

Unfortunately, yes you do have to pay taxes on your unemployment benefits, like always. The standard and expanded unemployment benefits are considered taxable income by the federal government, and many states consider it taxable as well.

Here are some details of the new unemployment benefits:

  • 13 weeks in additional unemployment benefits added to the typical 26 weeks of unemployment that most states provide, at the same rate (see the article linked above for benefit length for all 50 state). This benefit runs through 12/31/2020. 
  • A new $600/week benefit payment in addition to existing unemployment payments. This extra benefit is good between April 5, 2020 and July 31, 2020. You can receive this extra benefit until you’ve exhausted your state benefits. In some states that more than doubles the weekly maximum benefit amount, and in some cases means some people are earning more by being unemployed. See the weekly max benefit for each state in the table down below. 
  • Unemployment benefits now available for part-time and contract workers as well as self-employed individuals. Great news for all you delivery folks and Uber drivers out there!

Hang In There Everyone!

I know these are trying times, but the government is doing its best to get as much money into as many American's hands as possible. The Paycheck Protection Program is another great stimulus program from the CARES Act, which will help support over 1 million small businesses that employ ~48% of the working population.

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