What Is A Stimulus Check
A stimulus check is a direct payment to American families by the U.S. government in response to COVID-19.
This has nothing to do with Freedom Checks, Superpower Checks, or Federal Rent Checks, which are all related to investment opportunities. This piece is about stimulus checks sent to people by the government.
Since the start of the pandemic, three stimulus checks have been paid out:
- The Coronavirus Aid, Relief, and Economic Security Act was the first direct payment of up to $1,200 per eligible adult and $500 per eligible dependent child.
- The second stimulus check was paid out in December of 2020, paying up to $600 per eligible adult and dependent child.
- The American Rescue Plan Act on March 11, 2021, which secured the third stimulus check of up to $1,400 per adult and dependent.
After paying out the first stimulus payment, American families still needed more financial relief as the pandemic raged on. In December 2020, the U.S. government passed a second stimulus check.
When President Joe Biden was voted in on the promise of providing additional financial relief, he signed a bill authorizing a third stimulus check as soon as he took office. He signed The American Rescue Plan Act into law on March 11, 2021. It is expected to be the last direct payment Americans receive.
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What If I Never Received A Stimulus Payment
If you didn’t receive the full payment you were entitled to, then it’s possible that when you are filing your 2020 tax return you may end up getting more money, says Eric Bronnenkant, head of tax at financial services firm Betterment.
If your economic situation changed let’s say you qualified based on 2018 or 2019 income because it was lower, but your economic situation improved for 2020 the IRS actually can’t ask for any of that money back, Bronnenkant adds. Your situation can’t get worse in that scenario.
Taxpayers will need to file a 2020 federal income tax return to claim the Recovery Rebate Credit if they didn’t get their Economic Impact Payments or they received less money than they’re eligible to get, such as if a child’s credit wasn’t included in the payout.
The Recovery Rebate Credit is listed on Line 30 of the 1040 Form for the 2020 tax year.
Aimee Picchi and Susan Tompor
Follow Aimee on Twitter @aimeepicchi and Susan @tompor.
Changes Made In Taxpayers Accounts
Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed these taxpayers a letter informing them of the corrections. The IRS suggested that taxpayers keep that letter with their tax records. In addition to adjustments made for unemployment compensation, the IRS also made adjustments that included corrections to the following credits :
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The Extent Distribution And Urgency Of The Tax Problem
We used the available public data to estimate the likely size of the surprise-tax wave. While states are not required to publish rates of tax withholding opt-in for UI benefits, they are required to report the amount of money transferred to the IRS for tax withholding.11 In 2020, $21.85 billion was transferred from state UI offices to the IRS for tax withholding. Since UI beneficiaries are only offered a standard withholding rate , and there were $580 billion in total nationwide benefits, we can conclude that fewer than 40 percent of UI payments in 2020 had taxes withheld. Given that the average UI beneficiary received approximately $14,000 in UI income in 2020, there will be millions of families burdened by federal income tax bills.
Tax relief for UI recipients would be targeted mostly to households with the greatest needs and highest marginal propensity to spend . Low-income workers are over-represented among UI recipients according to the Census Household Pulse Survey, about half of adults receiving some unemployment assistance between March and November 2020 reported having a household incomebelow $50,000 in 2019 .
Figure 1
Due to their over-representation in the hardest hit sectors, stubborn levels of unemployment, and lengthy jobless spells, low-wage workers and workers of color are likely to have received high levels of unemployment insurance income. Economic relief should center these workers, and UI tax forgiveness is aligned with that important goal.
Expanded Unemployment Assistance In 2020
In addition to tremendous increases in the number of workers claiming state UI benefits, millions of workers became newly eligible for unemployment benefits, were eligible for additional weeks of benefits, and received higher benefit payments than they would under longstanding UI programs as a result of the CARES Act. The CARES Act, enacted in March 2020, established three programs targeted at jobless workers:
- Pandemic Extended Unemployment Compensation grants thirteen additional weeks of UI to workers eligible for state unemployment benefits who are still jobless when they exhaust their state benefits . The Continued Assistance for Unemployed Workers Act , passed in December 2020, increased this to twenty-four weeks, but the additional eleven weeks can only be paid out in 2021.
- Pandemic Unemployment Assistance allows traditionally ineligible workers to access up to thirty-nine weeks of unemployment benefits . This includes self-employed workers, part-time workers, and low-wage earners, as well as workers unable to work for COVID-19-related reasons .
- Federal Pandemic Unemployment Compensation added $600 per week to unemployment benefit payments for seventeen weeks between April and July 2020. The last FPUC benefits were paid out the week ending July 26, and Congress did not extend the program in 2020. The CAUW Act reinstated the FPUC program for the 11 weeks between January and mid-March 2021, but at only $300 per week.
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The Case For Forgiving Taxes On Pandemic Unemployment Aid
What You Should Know
- The $580 billion in unemployment insurance benefits paid out in 2020 are currently subject to federal income taxes.
- Millions of families will face surprise tax billssome ranging into thousands of dollarsas we head into tax filing season.
- Congress and the Department of the Treasury must exempt these benefits from taxation to support families facing sustained economic hardship.
As we write, Congress and the Biden administration are debating the size of a new relief package needed to aid struggling households and right the economy. Mostly unnoticed in the negotiation, though, is that, thanks to a decision by the Trump Department of the Treasury earlier in the pandemic, many hard-hit families who received unemployment insurance benefits in 2020 are now facing unexpected tax bills that could run to the thousands of dollars per family.1 At a time when millions are unemployed,2 when families continue to face food and home insecurity,3 Congress and the Biden administration must act urgently to prevent these surprise tax bills, and to allow millions who have already paid tax on their 2020 benefits to receive a timely refund check.
Not only will this surprise tax bill hurt many workers who cant afford it right nowtheres a strong legal argument that, according to current law these benefit payments should never have been taxed in the first place.
Unemployment Benefits And 2020 Tax Returns
Without this new tax exemption, many people who claimed unemployment benefits in 2020 could have faced an unwelcome tax bill.
Generally, unemployment benefits are taxable income. That includes standard state unemployment benefits as well as 2020 federal benefits expansions, like PUA, PEUC, and other federal relief measures.
But millions of claimants did not have federal taxes withheld from their benefits last year, whether because they didnt know they were taxable or because they couldnt afford to have some amount of benefits withheld, according to analysis by the Century Foundation.
To further complicate things, while state unemployment offices are supposed to offer standard 10% federal tax withholding, not all states offered withholding consistently across different CARES Act programs.
Researchers estimate fewer than 40% of unemployment insurance payments issued in 2020 had taxes withheld.
The average unemployed worker received $14,000 in unemployment benefits in 2020, the Century Foundation estimates. Now, with $10,200 of that income tax-exempt, the average claimant will owe taxes on just $3,800 of the money they took in.
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Find Out If You Owe Taxes On Unemployment
The first step to finding out if you owe state and federal taxes on unemployment benefits is to locate form 1099-G.
New Yorkers can find their form 1099-G by logging in to the state Department of Labor’s website and selecting ‘Unemployment Services’. Selecting the section titled ‘Get your 1099-G’ will automatically begin to download the form.
New Yorkers can request paper copies by calling the state Department of Labor at 888-209-8124.
Iv Taxation Of Forgiven Paycheck Protection Program Loans
Section 12 of the Act provides a deduction for cancellation of debt income related to forgiven PPP loans made under § 1102 of the CARES Act. The deduction applies to the taxable year beginning January 1, 2020. PPP loan borrowers subject to the Massachusetts personal income tax, including Schedule C filers, certain partners in a partnership, and S corporation shareholders should not include in Massachusetts gross income the amount of a PPP loan forgiven under § 1106 of the CARES Act during the 2020 tax year.
The deduction parallels the federal exclusion for such income provided in the CARES Act. The Department previously stated, in TIR 20-9, that the amounts of COD income from such forgiven loans would be taxable under G.L. c. 62 because, for personal income tax purposes, Massachusetts generally follows the Internal Revenue Code as amended and in effect on January 1, 2005. The Act brings Massachusetts into conformity with the federal exclusion in the CARES Act. Consequently, this TIR supersedes TIR 20-9 as it relates to the inclusion of income from forgiven PPP loans for borrowers subject to the Massachusetts personal income tax. Taxpayers who have already filed their 2020 personal income tax returns and included forgiven PPP loans in Massachusetts gross income should file an amended return to exclude these amounts.
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What To Do If You Havent Been Paid Your Stimulus Check In 2023
If you havent been paid your stimulus check, there are steps you can take to claim your money.
First, you have to be eligible. You have to be:
- a U.S. citizen or U.S. resident alien
- Not a dependent of another taxpayer.
- Earning not more than $150,000 if you are married and filing a joint return, $112,500 if a head of household, or $75,000 as a single filer.
Stimulus check 1 and 2
If you did not receive your first or second stimulus check, you can file a 2020 tax return because thats the only way you will be able to claim unpaid funds from your first and second stimulus check through the Recovery Rebate Credit.
This credit is for those who did not receive any stimulus money at all or received the incorrect amount. You can claim a partial credit and get any additional funds.
You can claim your payment by filing your tax return because the stimulus checks were an advance on a tax credit. Since the IRS is no longer sending out these advances, the only way to claim unpaid stimulus money is to file a tax return.
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Third Stimulus Check
The third round of Economic Impact Payments was enforced by the American Rescue Plan Act of 2021. The IRS started sending the checks in March 2021.
As of writing this, the IRS has issued all third Economic Impact Payments and related plus-up payments and most eligible people already received the payments.
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How To Know Your Stimulus Check Status
The IRS created a website to track the status of your stimulus payment. It no longer tracks your payment status on either of the three checks as of writing this in 2023. When the status website worked, you could check:
- If your payment had been processed. The IRS specified whether it had sent your check, the date issued, and whether the money would be directly deposited or mailed.
- If your status read Payment Not Available. The IRS indicated whether it hadnt yet processed your payment or you werent eligible for one.
- If it reads Need More Information. The IRS specified whether your check was returned to the IRS after an attempted delivery. You could then provide your bank account information to receive your money.
To get your check, you had to file the specified tax return.
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What To Do If You Owe Taxes On Unemployment Benefits
After going through these steps, you may find that you owe taxes to the IRS. If you do, don’t panic. You have options.
However, not paying that tax bill is not one of those options. You should make every effort to pay as much of your tax bill as possible. Not paying your tax bill means that you’ll immediately face additional penalties for late payment, as well as interest that accrues on your unpaid taxes. If you continue to not file your taxes, the IRS may seek legal remedy against you.
What If I Received A 1099
If you received a 1099-G reporting taxable unemployment benefits, but you did not collect unemployment, it could be fraud. In guidance the IRS issued in late January 2021, the IRS advised anyone who receives an inaccurate 1099-G to contact their state agency not the IRS to request a corrected form. If you are a victim of unemployment benefits identity theft, consider opting into the IRS Identity Protection PIN program. An IP PIN is a six-digit number that helps prevent thieves from filing federal tax returns in the names of identity theft victims. Visit irs.gov/identity-theft-central for more information.
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What If I Dont Have The Funds To Pay My Tax Balance Due
If you cant pay the full amount of taxes you owe, you should still file your return by the deadline and pay as much as you can to minimize penalties and interest. You can go online to irs.gov/payments or call the IRS at +1 800 829 1040 to see if you might qualify for a payment plan to pay off your balance over time. In some cases, the IRS may waive penalties if there is reasonable cause for the failure to pay timely. The IRS does not waive interest, however, so keep this in mind. You may also want to check to see if you qualify for an extension of time to pay due to a federally declared disaster.
Do You Owe Taxes On Unemployment Benefits
Yes, unemployment checks are taxable income. If you received unemployment benefits in 2021, you will owe income taxes on that amount. Your benefits may even raise you into a higher income tax bracket, though you shouldn’t worry too much about getting into a higher tax bracket.
People who file for unemployment have the option to have income taxes withheld from their unemployment checks, and many do. If you elected to do this, you have little to worry about.
What if you didn’t choose to have income taxes withheld from your unemployment checks? Don’t panic. If you were employed during much of the year, you may simply see a reduced tax return or a very small tax bill when you file.
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How Do I File Taxes If I Only Received Unemployment In 2020
Unemployment benefits are taxable income. If you received unemployment benefits at any point you should have receive a Form 1099-G reporting the 2020 total to the IRS. If you didn’t receive the form, most state unemployment sites will have the form available to download once you log in. If you had any taxes withheld from the benefits those should appear on the form.
Josh Rivera
Follow Josh on Twitter @Josh1Rivera
Victim Of Unemployment Fraud
Criminals using stolen identities filed claims for unemployment compensation in other people’s names. Because unemployment compensation is taxable, state unemployment agencies submit Forms 1099-G to individuals in whose names and Social Security numbers the unemployment compensation was paid and to the IRS. Victims of fraud who receive Forms 1099-G with inaccurate amounts of unemployment compensation in Box 1 should notify the state agencies of the inaccuracies and request corrected Forms 1099-G. The Department of Labor details how to report fraud and protect yourself.
Taxpayers should only report on their tax returns unemployment compensation they actually received in that tax year. Do not report unemployment compensation you did not receive. The IRS offers tax guidance to victims at Identity Theft and Unemployment Benefits.
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Q5 Am I Eligible For The Exclusion If I Live In American Samoa The Commonwealth Of The Northern Mariana Islands Guam Puerto Rico Or The Us Virgin Islands
A5. Residents of U.S. territories who receive unemployment compensation payments that are otherwise subject to U.S. income tax, may be eligible to exclude up to $10,200 per person of unemployment compensation from U.S. income tax for 2020.
Eligible residents must have modified adjusted income of less than $150,000 to exclude up to $10,200 of unemployment compensation from their 2020 federal income tax return. In the case of taxpayers that are married filing jointly, the maximum exclusion would be $10,200 for each spouse for a maximum of $20,400. You may not exclude more than the amount of unemployment compensation you actually received.
U.S. territory residents with questions relating to the taxation of COVID-related unemployment compensation by the territory should contact their territory tax department. More information is also available in News Release IR-2021-81, IRS reminds U.S. territory residents about U.S. income tax rules relating to pandemic unemployment compensation.
