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The bottom line: The stimulus check most Americans received is not taxable, but unemployment assistance is.
Diane DeCesare, a partner at the tax firm Drucker & Scaccetti, explains.
The stimulus check is a tax credit for next year's tax return. It's yours to keep, and won’t be taxed.
So when you do your 2020 taxes, you won’t get that credit if you received a check already.
"They are giving you the credit in advance," she said.
And because it's based on annual income, some people could get more, if they make less this year than the IRS expected. The limit is $1,200.
"So if you get a higher tax credit when you do your 2020 return, meaning you made less money in 2020 than they thought you were entitled to in the credit, you will get the differential in 2020 when you file the return," DeCesare said.
However, if you’re getting checks from your state’s unemployment office, that income will be taxed.
"Unemployment compensation you receive — plus the $600 extra — is taxable, and you have to claim it as income on your tax return that you are doing for 2020," she said.
That income will not be taxed by the state, she said.
DeCaesar’s advice is to let the IRS take back that money now, through the unemployment office, to make it easier for next year’s returns.
"The general taxpayer struggles to keep the taxes aside and pay it at the end," she said. "So it does depend on the person, whether they can manage their own cash flow, but I do recommend most people to take the 10% withholding off and to paid in as they are receiving the money."
For more information, visit Drucker & Scaccetti's COVID-19 Tax Resource Center.
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