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Will I Owe the IRS Tax on My Stimulus Payment

Some worry the money will get reported as income on 2020 or 2021 tax returns

iStock / Getty Images The Internal Revenue Service (IRS) is sending out millions of checks in the third round of stimulus payments. As people start to spend their money, some wonder: Is my stimulus payment taxable? Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. The short answer: No. In the somewhat longer words of the IRS: “No, the payment is not income and taxpayers will not owe tax on it. The payment will not reduce a taxpayer's refund or increase the amount they owe when they file their 2020 or 2021 tax return next year. A payment also will not affect income for purposes of determining eligibility for federal government assistance or benefit programs." () Entertainment $3 off popcorn and soft drink combos See more Entertainment offers >

Not your average tax credit

The — or economic impact payment, as the IRS calls it — is technically a tax credit. But this isn't widely understood. Some people assume that the IRS will add the amount to your income, generating a bigger tax bill, or reduce your future tax refund when you file your tax return next year. Neither is the case, but this bears some explaining. In the tax world, a tax deduction is a good thing. It reduces your income, which reduces the amount of tax you owe. If you had $50,000 in income and had a $5,000 tax deduction, your deduction would reduce your taxable income by $5,000. If you were in the 12 percent tax bracket, you'd reduce your taxes owed by $600 (12 percent of $5,000). AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. . Refundable tax credits can. For example, if you owed $1,000 in taxes but had a refundable tax credit of $1,200, you'd get a $200 tax refund check from Uncle Sam. Because you're getting what amounts to a refundable tax credit now in the form of a third stimulus payment, rather than waiting to get the money from the credit in 2022 when you actually file your 2021 tax return, you're in effect getting an advanced refundable tax credit.

Recover missed stimulus payments on 2020 tax returns

If, for some reason, you didn't get any stimulus payment last year, but you're owed one, you can get it this year when you file your 2020 tax return by If you don't get the full amount that you were entitled to from the first or second stimulus payments — you could also get that from your 2020 tax return. AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. More on money AARP Membership — $12 for your first year when you sign up for Automatic Renewal Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP the Magazine. AARP VALUE & MEMBER BENEFITS See more Health & Wellness offers > See more Flights & Vacation Packages offers > See more Finances offers > See more Health & Wellness offers > SAVE MONEY WITH THESE LIMITED-TIME OFFERS