Will My COVID-19 Stimulus Payment Affect My 2021 Tax Refund?

If you received an Economic Impact Payment (EIP) this year, you are probably wondering how it will affect your 2021 tax refund. Are EIPs considered taxable income? Can your EIP be applied to any taxes due? We answer these questions and more in the article below. 

Will my stimulus payment reduce my expected 2021 tax refund?  

No, your EIP won’t reduce your tax refund. Your tax refund is money paid back to you because you overpaid your taxes during the year. The stimulus check is a separate payment outside of your tax obligations. 

Is the stimulus payment an advance on my tax refund? 

No. The stimulus payment is a federal tax credit for tax year 2020. However, unlike other credits, such as the child tax credit or earned income tax credit, the government distributed these payments ahead of tax season instead of making taxpayers wait until January. The purpose of the EIP was to stimulate the economy during the COVID-19 outbreak. 

Do I need to report my stimulus payment on my tax return? 

Keep the receipt that the IRS mailed to your address 15 days after you received your stimulus payment. The IRS will provide more information about what to do with this info at a later date.

Will I owe taxes on my stimulus payment?  

EIPs are not considered taxable income. The government will treat them like an advanced 2020 tax credit, which means you won’t owe income tax on your stimulus payment.  

Do I have to pay my stimulus payment back when I file my taxes in 2021 

No, you won’t have to pay the government back for your EIP. The payment was based on how much income you received during the year (either 2018 or 2019, depending on if you filed your 2019 tax return before receiving your EIP). Only taxpayers who fell within the approved income levels received an EIP. 

For more information about who receives a stimulus payment, read COVID-19 Stimulus Checks. 

Will my stimulus payment affect other federal benefits? 

No, your EIP will not affect other benefits, such as Social Security and unemployment benefits. Receiving these benefits will also not disqualify you from receiving an EIP. 

Did you receive unemployment benefits in 2020? It’s important to know that unemployment income is taxable and should be reported on your tax return. Learn more.  

Will my stimulus payment place me in the next tax bracket?  

No, the EIP is not taxable income, so the payment will not affect your tax bracket. 

Am I eligible for the Recovery Rebate tax credit on my 2020 return if I already received an Economic Impact Payment (EIP)?  

The EIP is an advance payment for the 2020 tax credit in response to COVID-19. If you received the full amount you are eligible for, you won’t receive the new Recovery Rebate credit on your tax return. 

However, if you received less than you are eligible for, you will be able to claim the additional credit on your 2020 return. 

For example, if you had a baby in 2020 after receiving your EIP, you will be eligible for the $500 dependent stimulus payment on your taxes.  

State refunds will most likely proceed as normal since states did not send stimulus payments.  

For more information about the new credit, read What to Know About the Recovery Rebate Tax Credit for 2020.