Here is how much tax you have to pay for each type of stimulus payment
Here is how much tax you have to pay for each type of stimulus payment

Here is how much tax you have to pay for each type of stimulus payment

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Whether you pay tax on incentive depends on the type of benefit.


Key points

  • Most sources of stimulants are not taxable.
  • The exception is unemployment benefits.

Most of us have received pandemic-related assistance over the last two years. And while we’re pushing to get our 2021 returns filed, many of us are asking if any of these funds are taxable. Will we receive a smaller refund, or worse, do we owe money?

Here we look at the final stimulus checkthe $ 1,400 checks that began hitting bank accounts in March 2021. However, we also include other COVID-related financial assistance, including advanced child tax deductions, boosted unemployment benefits, and emergency benefits.

Stimulus check

Last spring, millions of Americans received a stimulus check for up to $ 1,400. These stimulants are not taxed.

According to the IRS, “No, the third economic impact payment is not included in your gross income. Therefore, you will not include the third payment in your taxable income on your 2021 federal tax return or pay income tax on the third payment.”

Unfortunately, there seem to be some internet rumors swirling out there by people who think they are actually being taxed by stimulus checks. If you come across such inaccurate information, just ignore it.

Bottom line: If your tax bill is higher than normal this year, there is another reason for it. Stimulus checks are not taxable.

Advanced tax deduction for children

Most American families with children received monthly advances Child tax deduction in 2021. These payments ranged from $ 250 to $ 300 each (depending on the age of the child) and arrived in bank accounts around the country from July to December.

Like stimulus checks, Child tax deductions are not taxable. If you find that your refund is less than normal this year, this may help explain why:

  • In a “typical” year, you will receive a credit of $ 2,000 per year. eligible child. If you have three children, that’s a $ 6,000 credit.
  • Let’s say your three kids are 6, 8 and 10 years old. Thanks to the US rescue plan, the total credit was increased to $ 3,000 per. child. If you received $ 250 a month between July and December 2021, you have already received $ 1,500 of the $ 3,000 owed ($ 250 x 6 = $ 1,500).
  • You apply for the other half of the child tax deduction on your tax return for 2021. In other words, you apply for a credit of $ 1,500 per year. children instead of the $ 2,000 you would normally apply for. So instead of receiving a credit of $ 6,000 this year, the maximum you receive is $ 4,500.
  • While it may seem like you’ll be “shorted”, you are actually money ahead. In an average year, you would have received $ 6,000 for three eligible children. Due to the advanced Child Tax Credit, you will receive $ 9,000 – just not as much as usual at the time of taxation.

Bottom line: If you receive a small refund, it may be because you have received part of the child tax deduction in advance. You pay no tax on advanced child tax deductions.

Increased unemployment

For the fiscal year 2020, Congress waived federal taxes on the first $ 10,200 in unemployment benefits. The same does not apply to the tax year 2021.

About 25 million people applied unemployment benefits in 2021. All 25 million must pay federal tax on these benefits (as usual). Whether you owe state tax on unemployment benefits depends on the state you live in.

The following states are either not subject to any state income tax, exempt unemployment benefit from their state taxes, or tax only part of the unemployment benefit. Make sure you understand the rules of your state.

State tax category

State

states that have no income tax

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming

States exempting unemployment benefits at the time of taxation

Alabama, California, Montana, New Jersey, Pennsylvania and Virginia

states that tax part of the unemployment benefit

Indiana and Wisconsin

Data source: Tax Outreach

If you received unemployment benefits in 2021, you should have already received a Form 1099-G showing how much you received and how much was withheld for tax.

Learning that taxes have to be paid can be uncomfortable, aggravated if you are not working or have only recently returned to work. If your tax bill is too much to pay right now, apply to the IRS to pay the balance in monthly installments. An installment agreement is available online through the IRS website.

Bottom line: If you received unemployment benefits in 2021, federal taxes will have to be paid on those funds. Whether you pay state tax or not depends on the state you live in.

SNAP, P-EBT and TANF benefits

Following the outbreak of COVID-19, the USDA granted state exemptions, enabling emergency allocations of the Supplemental Nutrition Assistance Program (SNAP). And in 2021, Congress expanded Pandemic Electronic Benefit Transfer (P-EBT) – a program designed to ensure that children from struggling families get the nutrition they need. In addition, low-income families had access to the Temporary Assistance to Families in Need (TANF) program. These services fall into the non-taxable category.

Bottom line: SNAP, P-EBT and TANF benefits are not taxable.

If you find that you owe more than expected or receive a smaller refund than you hoped for, take an extra look at your taxes. Make sure that none of the non-taxable benefits are included as income.

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