Following the pandemic and the resulting economic downturn, the American Congress authorized multiple stimulus checks to help America recover from the downturn. People were immensely helped by the staggered payments, but with it came the issue of paying taxes on federal assistance. To allay the fear of citizens, the federal administration has assured that there are no strings attached to stimulus payments.
It has been categorically confirmed by the federal administration that citizens need not pay any taxes on the stimulus assistance linked to the COVID-19 pandemic.
The IRS has said that the relief checks have not been deemed income. This goes against the normal stated policy of the IRS that normally compels citizens to pay taxes on all classes of income.
The Stimulus Checks Are Technically Tax Credits That Were Paid Earlier To Help Americans During The Pandemic
The stimulus check payments were all tax credits in principle. The stimulus checks paid in 2020-2021 were advance installments of tax credit and were not taxable income.
Tax incentives are a reduction in your obligation to pay taxes. You claim an income tax credit when you pay your taxes. The credit gets applied to all outstanding amounts. The excess is credited to your account as either a credit or a refund stimulus check.
Considering the serious nature of the pandemic and its international implications, the federal administration rightly decided that paying Americans directly through stimulus checks was more prudent than returning it almost a year later as a tax credit or a refund. The stimulus check thus helped Americans get instant respite from the economic hardships of the pandemic.
Missing out on stimulus check payments can easily be recovered by filing a tax return. The relief check is then claimed as a tax credit. They can be offset against any pending taxes, similar to other credits.
It is worth pointing out that the only way to claim the recovery rebate credit is by filing the 2021 tax returns before the deadline on April 18, 2022. If you request an extension, the deadline will be pushed to October 17.