Are Stimulus Checks Taxable? Here's When You Have To Pay Tax

Most people who received stimulus checks would not see a rise in their tax bill, but there are circumstances when an individual would receive a bigger tax bill because of the direct payments.

Individuals who received an overpayment may need to repay the extra money on their taxes. The rules vary in this aspect. The IRS does not require repayment from people whose income increased. Having said that, there are several instances when the IRS might require individuals to repay the extra money from their stimulus checks.

Recovery Rebate Credit

Individuals who miscalculated when claiming their recovery rebate credit could see a bigger tax bill and a letter from the IRS. The agency has already contacted millions of Americans who received an overpayment on last year’s credit due to miscalculations.

The Recovery Rebate Credit is a tax credit made available to people who are missing a stimulus payment or who got less money than they should have.

Child Tax Credit

The American Rescue Plan, signed into law on March 11, 2021, included provisions that provided eligible parents of minors up to $3,600 per child aged 5 and under and up to $3,000 per child aged 6 to 17.

The IRS used information from 2020 tax returns to calculate the amount of payments to be sent to each eligible parent. This means recipients whose income was higher in 2021 than in 2020 may need to repay the Child Tax Credit.

Individuals who are claiming the credit for fewer children may also need to repay the stimulus money. This often happens to couples who divorced and their former spouse claimed their children as dependents on their taxes.

Additionally, Child Tax Credit recipients whose main home was not in the U.S. may be asked by the IRS to repay the direct payments. The Child Tax Credit payments are only available to individuals whose principal residence must be in the country for more than half a year.

Extra Stimulus Payments

When the IRS was distributing the third round of direct payments, some individuals accidentally received two $1,400 checks. The IRS sent instructions on how to send extra checks back. The agency has also contacted people who deposited both checks.