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With the pandemic hitting hard, most people have been affected. Millions lost their jobs and sources of income, leading to worsened financial conditions. As a result, the US government approved stimulus checks to help affected people.
With the tax season nearing, many people are wondering whether to file tax on stimulus checks. Ideally, every income received is taxable. Are stimulus checks taxable income?
If you are worried about getting into bad books with Uncle Sam because of stimulus checks, there is no need to panic. You don’t have to give a cut of your checks to the taxman.
COVID-19 stimulus checks are a tax credit and should be confused with actual income. They are meant to improve spending power and stimulate economic activity.
Americans earning below $75,000 or couples earning below $150,000 are eligible for a second round of the COVID-19 stimulus checks. Each person will receive $600 from the government to ease the pandemic’s effects.
During the first round, the maximum payment received was $1,200. Besides, another proposed $1,400 stimulus check might be coming along soon enough.
The stimulus checks are calculated based on tax information submitted in 2018 and 2019. This of it this way:
You may have lost your job or had a massive pay cut such that your taxable income falls under $75,000. With the IRS data not yet updated, you’ll definitely miss out on the checks.
However, you can claim your checks while filing your taxes. Filling a return showing you qualified for the checks will allow you to receive the checks. To get this money, make sure you submit 1040 forms early enough, and you’ll receive the stimulus checks.
Absolutely not! While you may struggle to settle your bills, the money will still come. Any attempt to push the payment process is a scam. Neither will the IRS nor government officials contact you regarding stimuli money.
It’s no doubt that stimulus checks provide a financial boost during these challenging times. Rather than spending on luxury or things you don’t need, consider investing or even savings. Here are some ideal ways to spend your stimulus checks;
Are you wallowing in high-interest debts? Having a mortgage, student loans or credit card, means you are likely paying high interest. You can use your checks to pay off high-interest debts. This reduces your overall monthly expenses. You can pay down your mortgage principal to reduce the amount of interest you pay over time.
COVID has sent the correct signals regarding emergency savings. Stimulus checks allow a good start if you don’t have an emergency saving.
Open a savings account with no monthly fee or minimum balance requirement. You can deposit the little checks for a start. This way, you can build up to six months of emergency savings.
Having less money in retirement can be detrimental. Since stimulus payments aren’t taxed, you can save them in a Roth IRA. In this account, it grows tax-free and will be withdrawn tax-free.