Coronavirus stimulus payments have already begun hitting bank accounts, and more Americans will soon see direct deposits or checks arriving in the mail.
These payments, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, are worth as much as $1,200 for each adult plus an additional $500 per dependent child. Although the amount you'll get goes down by $5 for each $100 you make over $75,000 as a single filer or $150,000 as a married joint filer, the majority of Americans will get a substantial sum of money from the government.
When you get this money, you'll notice there are no taxes withheld from it. And if you're used to being taxed on all the income you earn, you may be wondering if you'll have to eventually pay taxes on your coronavirus stimulus funds.
Are coronavirus stimulus checks taxable?
The good news is, coronavirus stimulus checks are not subject to state or federal income tax. And the money won't be counted as taxable income, so it can't push you into a higher tax bracket or affect your eligibility for any deductions or credits that have income limits.
The money you get is not considered taxable income because it isn't income -- it's an advance on a federal tax credit.
Normally, you claim your tax credits -- such as the child tax credit or earned income tax credit -- when you file your tax returns each year. And you get the money for them when your refund comes after you've submitted your 1040 form.
But the government wants you to have your stimulus money now. So instead of making you wait until next year to file your 2020 returns and get your stimulus payment, it's distributing the money ASAP via direct deposit or paper check.
Coronavirus stimulus money is also being made available to you because of a brand-new tax credit created by the CARES Act. That means it's not an advance on the refund you'd normally get. You'll still be able to claim all your normal deductions and credits next year. The stimulus payment won't offset or reduce them.
In fact, even if you get more stimulus money than you should be entitled to based on your earnings this year, you get to keep the excess. This could happen because the amount you'll be sent is based on your 2019 tax returns -- or your 2018 returns if you haven't yet filed for last year due to the extension of the deadline.
You could, however, end up getting more stimulus money when you file your 2020 taxes. If you have a new child dependent the IRS didn't know about when it sent your stimulus payment or if your income goes down compared with the 2018 or 2019 info used to calculate your check amount, you could get additional stimulus funds after filing your returns next tax day.
Don't worry about owing taxes on your coronavirus stimulus money
The entire amount of coronavirus stimulus money you receive via direct deposit or a paper check is yours to keep, so you don't have to worry about owing the IRS later because you got this cash.
You can feel free to spend, save, or invest the entirety of it without putting any aside to cover a bigger tax bill.