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Covid-19 Impact

Stimulus Check Reconcilement: What you need to know

Mark Steber Chief Tax Information Officer Published On February 18, 2021

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Is the stimulus check taxable? Do you have to pay it back? All your questions about the recent EIP answered.

What is the stimulus check?

Millions of taxpayers received stimulus checks, also known as economic impact payments or EIPs, in 2020 or early 2021. These funds were a prepayment of the 2020 Recovery Rebate Credit. The MOST IMPORTANT thing taxpayers need to understand: neither of these stimulus checks is considered taxable income and should not be included as such when someone files their 2020 income taxes. The next thing taxpayers need to know: if they haven’t received all their possible stimulus payments by now, they might be eligible for the Recovery Rebate Credit.

Taxpayers should have received their first stimulus payment in April 2020. Taxpayers should have received an IRS Notice 1444 that showed the exact amount they received, The notice was mailed to every recipient within 15 days of payment issuance. Taxpayers started to receive the second stimulus check during the last week of December 2020. There are a variety of income limits, claimed dependents, and other factors that taxpayers should be aware of with both stimulus payments. See answers to frequently asked questions about the second stimulus.

Many taxpayers might also be wondering if they must pay back their stimulus check if they received too much. The answer: No! Even a child who was 16 in 2019 and received a check, but then wasn’t eligible in 2020, doesn’t have to repay anything.

Do taxpayers have to claim stimulus checks on their 2020 income taxes?

Stimulus payments are not considered taxable income. The only taxpayers who should reference these payments on their tax returns are those who are eligible for the Recovery Rebate Credit. Stimulus checks also won’t impact a taxpayer's gross income for 2020.

What is the Recovery Rebate Credit?

The Recovery Rebate Credit is the actual credit that taxpayers were receiving prepayments, EIP, or stimulus payments, for during 2020. While most taxpayers received all of their possible credit with the first and second stimulus payments, some did not and must reconcile the payments received with the credit they are eligible for. All remaining amounts are the refundable Recovery Rebate Credit.

Eligible individuals who might qualify for the Recovery Rebate Credit are:

  • Taxpayers with a Social Security number.
  • Taxpayers who had an additional child(ren) in 2020 that was not on their 2019 or 2018 tax returns. This is for any taxpayer who had a child, fostered a child, or adopted a child during 2020. Additionally, this includes a child claimed by the other parent last year and claimed by the taxpayer this year – the parent claiming the child this year may be eligible to claim the Recovery Rebate Credit on their tax return while the other parent got the stimulus payment for the child based on the 2019 tax return.
  • Taxpayers with a Social Security number who have a spouse with an ITIN.
  • Taxpayers who are not considered a dependent of someone else.

Taxpayers do not need to complete any information about the Recovery Rebate Credit if they received all their stimulus money in 2020: the $1,200 ($2,400 if married filing jointly for 2020), plus $500 for each qualifying child and the additional $600 per individual in the second payment.

For other questions, watch this YouTube video about everything taxpayers need to know about the second stimulus payment and schedule an appointment today with a local Tax Pro at an office near you.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

More about Mark Steber Our Editorial Policy

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