How Will the 3rd COVID-19 Stimulus Payment Affect My 2021 Tax Return?

The information in this article was last updated on Nov. 13, 2021. This article relates to the tax laws enacted during the COVID-19 pandemic. These laws may have expired or reverted to their original state. 

If you received the third and final Economic Impact Payment (EIP), you may be wondering how it will affect your 2021 tax refund. Are EIPs considered taxable income? Do you need to report the payment on your 2021 tax return? We answer these questions and more in the article below. 

Will my tax refund be lower because I received a stimulus payment?  

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. 

Was the stimulus payment an advance on my tax refund? 

No. The third stimulus payment is an advance on a federal tax credit for tax year 2021 (the return you’ll file in 2022).

Unlike other credits, such as 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 3rd stimulus payment on my tax return? 

Yes. Keep the receipt that the IRS mailed to your address 15 days after you received your third stimulus payment. When you file with TaxSlayer, you’ll be asked to enter info about this payment.

Will I owe taxes on my stimulus payment?  

EIPs are not considered taxable income. The government is treating all stimulus payments like an advance tax credit, which means you won’t owe income tax on your third stimulus payment.  

Do I have to pay my 3rd stimulus payment back when I file my taxes in 2022?  

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. Only taxpayers who fell within the approved income levels received an EIP. 

Read more about the third stimulus checks

Will the 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 2021? It’s important to know that unemployment income is taxable and should be reported on your tax return. Learn more  

Will my 3rd 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 2021 return?  

The third stimulus check was an advance payment for the 2021 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 when you file your tax return in 2022. But if you received less than you are eligible for, you can claim the tax credit. 

For more information about this credit, read The 2021 Recovery Rebate Credit.

This article is intended to provide general information to the public and does not provide personalized tax, investment, legal, or business advice. You should seek the assistance of a professional for advice on taxes, investments, and any other financial, legal, or business matter pertinent to your individual situation.