Prepared for Jeff S. | Delivered December 20, 2020
Effect of 2020 Stimulus on Income Tax Refunds
Review your project details
To determine the impact of 2020 stimulus payments on income tax refunds for working families in order to provide the information to interested taxpayers.
The IRS states that the stimulus payment — or economic impact payment, as the IRS calls it — is
technically a tax credit for 2020.
According to Experian, the stimulus money is
not considered taxable income.
Any direct stimulus funds will not increase the amount of tax owed when on a 2020 federal tax return and will not decrease any refund for the 2020 tax year.
Garrett Watson, senior tax policy analyst for the Tax Foundation, an independent, nonprofit tax policy organization says.
In other words, any adjustments to a taxpayer's rebate on
2020 tax returns will be in the taxpayer's favor."
According to CNBC, there are
three key issues
that can affect the income tax refund for working families that received stimulus payments in 2020.
The first is the
unemployment insurance withholdings
. Recipients should check to see if income tax was automatically deducted by the state at the time of payment. This will have an impact on the total amount of income tax owing.
The second applies to people who
may not have received a stimulus check
but whose income fell significantly. It is quite possible they will qualify for a stimulus credit which will provide a larger than normal tax refund.
The third issue which may affect taxpayers is the
payroll tax deferral
which was automatically applied to federal government employees and may have been also applied to some in the private sector. Those who were affected could see a slight reduction in their net pay starting in January 2021.
Summary of early findings
Our initial hour of research showed that both government and media publications consistently state that there will be no negative impact on any taxpayer for the stimulus payments in 2020. There are also possible positive impacts for people who have not received a stimulus check but whose income dropped significantly in 2020.