A recent survey by the tax preparation company Jackson Hewitt found that 37% of respondents were planning to report their stimulus checks as taxable income.
“No, stimulus payments under the first program, the second program, and even if there’s a third program are not taxable,” explained Mark Steber, Chief Tax Officer at Jackson Hewitt.
But there is a reason why you might want to include your stimulus checks on your return.
“You do need to put them on your tax return if you’re due more money. If you had a child, adopted a child, fostered a child, didn’t qualify for the first one, share custody – all of those people will need to put down on their tax return how much they got to begin with, how much they are now due and the balance will come down as a bigger tax refund… But it is not taxable income and a lot of people are misunderstanding that.”
Many people who qualified did not receive stimulus payments in the second round of checks, and federal officials have said that those people will receive the money in their refunds.
The same survey found over 40% of people thought unemployment benefits are not taxable, another common misconception according to Steber.
“Unemployment benefits are fully taxable. Always have been, always will be,” he said. “They’re even more complicated because not only are they taxable every year, which is always a surprise to taxpayers… the government collects your taxes on the front end of your wages, they do not on your unemployment benefits. You have to opt in. You have to ask for taxes to be withheld and most people don’t.”
That means that many people who collected unemployment benefits last year may end up with a larger than expected tax bill.
An additional wrinkle this year is that because unemployment benefits were rapidly and substantially expanded, “Unemployment beneficiaries will get not just one 1099-G government benefit statement this year, they may get one, two or more depending on your city and on your state and how your benefits were administered.”
Steber says anyone who collected unemployment benefits last year should double check their reporting forms to make sure they match the total amount of benefits they received.