Billions of federal coronavirus relief dollars are flowing directly into Americans’ pockets, but will they have to send some of that money back to Uncle Sam come tax time?
The good news: Your stimulus payment is all yours!
The bad news: If you’re out of work, you will owe federal – and possibly state and local – taxes on any unemployment benefits you collect, including the temporary $600 weekly boost approved by Congress as part of its economic rescue package.
And because unemployment benefits count as income, they may also disqualify you from getting food stamps or federal subsides for health insurance policies bought on the Affordable Care Act exchanges. Neither the stimulus checks nor the extra federal jobless payments, however, will affect your eligibility for Medicaid.
Here are the details:
Stimulus payments are tax free
The Internal Revenue Service has sent out nearly 130 million stimulus payments, and more are on the way.
Americans earning up to $99,000 a year can receive up payments of up to $1,200, while married couples without children get up to $2,400 if they make no more than $198,000. For families, the threshold depends on how many children they have. Your income is typically based on your 2018 or 2019 tax return.
This money is tax-free and won’t affect any refunds you might be owed, said Howard Gleckman, senior fellow at the Tax Policy Center.
What’s more: You won’t have to return any funds if you received a payment but wind up earning more than the threshold in 2020.
And if you didn’t qualify based on your prior earnings but end up making below the threshold this year, you’ll receive your stimulus payment when you file your 2020 tax return.
Also, stimulus payments will not count as income for government assistance programs, such as Medicaid or food stamps, though the money could be considered part of your assets if you save it for more than 12 months, said Elizabeth Lower-Basch, director of income and work supports for the Center for Law and Social Policy, an advocacy group.
Unemployment benefits are subject to tax
Roughly 1 in 5 American workers have filed for initial jobless benefits since mid-March, when states started shuttering nonessential businesses and mandating that residents stay home.