Are Stimulus Payments Tax Deductible? When Will You Be Taxed on Direct Payments?


The majority of people who received stimulus checks would not see an increase in their tax bill, but there are some cases where an individual would face a higher tax bill as a result of the direct payments.




Individuals who received an overpayment may be required to repay the excess funds on their tax returns. In this regard, the rules differ. People whose income has increased are not required to repay the IRS. However, there are several situations in which the IRS may require individuals to repay the excess funds from their stimulus checks.


Credit for Recovery Rebates

Individuals who made a mistake when claiming their recovery rebate credit may receive a larger tax bill and a letter from the IRS. The agency has already contacted millions of Americans who received an overpayment on their credit card last year as a result of miscalculations.

The Recovery Rebate Credit is a tax credit available to people who did not receive a stimulus payment or received less than they should have.


Tax Break for Children

The American Rescue Plan, which was signed into law on March 11, 2021, included provisions that allowed eligible parents of minor children to receive up to $3,600 for each child aged 5 and under, and up to $3,000 for each child aged 6 to 17.

The IRS calculated the amount of payments to be sent to each eligible parent using information from 2020 tax returns. This means that recipients with higher incomes in 2021 than in 2020 may be required to repay the Child Tax Credit.

Individuals who claim the credit for having fewer children may be required to repay the stimulus funds as well. This frequently occurs when a couple divorces and their ex-spouse claims their children as dependents on their taxes.

Furthermore, Child Tax Credit recipients whose primary residence was not in the United States may be asked by the IRS to repay the direct payments. Individuals whose primary residence must be in the country for more than half a year are eligible for Child Tax Credit payments.


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Additional stimulus payments

When the IRS distributed the third round of direct payments, some people received two $1,400 checks by mistake. The IRS sent instructions on how to return any extra checks. People who deposited both checks have also been contacted by the agency.

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