Is My Stimulus Payment Taxable? And Other Tax Questions

With tax filing season about to begin, here’s what you need to know.

The tax filing season opens on Friday, and with it comes a question different from other tax years: How will the stimulus payments and unemployment income affect taxes?

Because of the pandemic and the government’s relief program, millions of people received both types of payments — but they are treated differently for tax purposes.

The good news is that you don’t have to pay income tax on the stimulus checks, also known as economic impact payments.

The federal government issued two rounds of payments in 2020 — the first starting in early April and the second in late December. If you got the full amount in both rounds, and your income and family circumstances haven’t changed, you’re all set. You don’t need to include information about the payments on your 2020 tax return, the Internal Revenue Service says.

“If they don’t owe you any more money, you don’t have to do anything,” said Kathy Pickering, chief tax officer at the tax preparation company H&R Block.

A refresher: The first payment was for up to $1,200 per person, plus $500 for each child. The second was up to $600 per person, plus $600 for each child.

Individuals with income of up to $75,000 ($112,500 for individuals filing as “head of household,” typically single parents) and married couples filing jointly with income up to $150,000 qualified to receive the full payment. People with higher incomes got smaller payments or nothing if their income exceeded certain caps.

If you were eligible for the payments but didn’t receive them for some reason — or didn’t receive the full amount — you can still get the money by claiming a “rebate recovery” credit on your 2020 tax return. You must file a return, even if you’re not otherwise required to do so, to claim the credit.

To determine the credit, filers complete a one-page worksheet (or walk through the steps on tax preparation software), then report the amount on their tax return. To do that, you’ll need to know the amount of any payments you received. You should have received a receipt — Notice 1444 for the first round and Notice 1444-B for the second round — detailing the payments.

Similarly, if you had a life change in 2020 — like the birth of a child, or if you are supporting yourself and are no longer claimed as a dependent on a parent’s tax return — you could be eligible for more cash by claiming the credit on your 2020 return.

If you didn’t receive the maximum credit and your income fell in 2020, it also makes sense to see if you qualify for the full credit. That’s because the stimulus payments were based on your tax information from 2018 or 2019, while the credit is calculated based on your 2020 income.

If you complete the worksheet and learn that your payments were higher than they should have been, don’t worry — you don’t have to return the extra money, the I.R.S. says.

Now for the (possibly) bad news. In addition to direct payments, government relief efforts included expanded unemployment benefits for people who lost their jobs in the pandemic.

Unlike stimulus payments, jobless benefits are taxed by the federal government as ordinary income, said Kelley Long, a consumer financial education advocate with the American Institute of Certified Public Accountants. (You won’t, however, pay Medicare and Social Security taxes on jobless benefits as you would with paycheck income.)

The extra taxes could come as a jolt to people who didn’t choose to have taxes deducted from their unemployment checks. You may end up with a smaller refund, or may even owe tax, Ms. Long said.

You should receive a form, 1099-G, detailing your unemployment income and any taxes that were withheld, which you enter on your tax return.

Ms. Long generally recommends that people getting unemployment benefits choose to have at least 10 percent withheld for taxes to avoid unwelcome surprises.

You’ll probably also owe state income taxes on the unemployment benefits, unless you live in one of the nine states that don’t have a state income tax or a few others that exempt jobless benefits, including California, Montana, New Jersey, Pennsylvania and Virginia. Wisconsin exempts jobless benefits for state residents but taxes benefits paid to nonresidents, according to the Tax Foundation.

Here are some questions and answers about income tax season:

I don’t remember getting a receipt for my stimulus checks. How can I confirm the amount I received?

If you didn’t get a notice or have misplaced it, check your bank statements to jog your memory. Or, the I.R.S. says, you can find the amounts using an online taxpayer account. If you don’t have one already, you’ll need to create one at IRS.gov/account. This requires you to enter information including an email address and your Social Security number and typically takes about 15 minutes, the I.R.S. says.

Could my stimulus payments affect my state taxes?

Stimulus payments aren’t taxable, but they could indirectly affect what you pay in state income taxes in a handful of states, where federal tax is deductible against state taxable income, according to the Tax Foundation. At least six states — Alabama, Iowa, Louisiana, Missouri, Montana and Oregon — allow deductions for federal income taxes paid.

Here’s an example, suggested by Garrett Watson, senior policy analyst at the foundation, of how a stimulus payment, taken as a recovery rebate credit, might affect tax liability in those states: An individual filer got a $1,000 stimulus payment in 2020 based on her 2019 income, but is actually eligible for the full $1,200 payment, based on her lower 2020 income.

The filer would claim the $200 difference as a credit on her federal 2020 tax return, on Line 30 of Form 1040. This would reduce her federal tax liability dollar for dollar, by $200. So if the filer had owed, say, $3,000 in federal taxes before the credit, she would then owe $2,800.

Absent the credit, she would have subtracted the full $3,000 from her taxable income on her state return, but instead can subtract just $2,800. That means a higher tax liability at the state level — but just on the $200 the filer claims on her federal return, Mr. Watson said.

Some states, like Missouri, have exempted the stimulus payments from having any impact on 2020 taxes, Mr. Watson said.

Will the timing of my 2020 tax return affect the size of my check in the next round of stimulus payments?

It could. President Biden has proposed a third round of stimulus payments of as much as $1,400, as part of his pandemic relief plan. Details are still being debated in Congress. But Democrats are pushing to send a relief plan to Mr. Biden’s desk by the time supplemental unemployment benefits begin to expire in mid-March.

The I.R.S. is likely to base the payments on either 2019 or 2020 income — whichever the government has available when the payments are issued, so people can get the money quickly.

Many people had significantly lower income in 2020 than in 2019 because of the pandemic, which argues for filing your 2020 return as soon as possible to maximize your stimulus payment. If you delay, your payment may be based on your higher 2019 income — which may mean a smaller payment.

Senator Ron Wyden, Democrat of Oregon and chairman of the Senate Finance Committee, recently wrote on Twitter, “By filing your taxes early, you’ll ensure your next relief payment will be based off of your most recent income.”