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Will Your Stimulus Money Come With a Big Tax Bill?

Many people have wondered how the stimulus checks will affect their taxes since they were initially distributed by the IRS. Stimulus money is a tax credit, which means it isn’t considered income and won’t increase your tax burden.

It’s a different story if you received an overpayment, and you may have to reimburse it on your taxes. The restrictions on this, however, differ. To give you a better idea of what to expect, we’ll go over when you’ll have a higher tax bill due to stimulus money and when you won’t.

If your income has increased, you will not be required to repay stimulus funds.

The most common concern is that you will have to repay stimulus funds because your income was too high. The IRS calculated how much to send based on your most recent tax returns at the time, and the stimulus cheques all had income limits attached.

Single filers earning more than $80,000, for example, were not eligible for the stimulus check that was distributed in 2021. But what if you earned $75,000 in 2020 and $100,000 the following year? Even if you didn’t qualify based on your 2021 income, you would have received the stimulus check based on your 2020 income.

You are not compelled to pay anything back for overpayments like this. It’s an uncommon occurrence when the IRS allows you to keep the excess money.

Here’s when you’ll get a stimulus-related tax bill.

A stimulus overpayment may result in a higher tax burden in certain circumstances. They won’t apply to most individuals, but it’s helpful to be aware of them if one of them does.

When claiming a Recovery Rebate Credit, you made a mistake.

The Recovery Rebate Credit is a tax credit for people who did not receive as much stimulus money as they should have. If you still owe money from the stimulus, you can apply for a Recovery Rebate Credit.

Read More:- Gas Stimulus Check: What Is the $400 Rebate Suggested by California Governor Gavin Newsom?

Double-check everything to avoid receiving an overpayment if you’re applying for the 2021 Recovery Rebate Credit. You’ll almost certainly receive a notice from the IRS if you made a math error when claiming this credit. Millions of those who overestimated their credit last year have already been approached by the IRS.

A Child Tax Credit overpayment was made to you.

The Child Tax Credit allowed parents of minors to obtain additional stimulus funds. Half of the credit was distributed in monthly installments from July to December, and parents can claim the other half on their tax returns. The maximum credit amount for 2021 was $3,600 for children under five and $3,000 for children aged six to seventeen.

The Child Tax Credit, like the stimulus cheques, had income limits. The IRS isn’t being as forgiving with overpayments as it is with stimulus cheques.

The IRS calculated how much to send parents based on information from 2020 tax returns. You might have gotten an overpayment if anything changed in 2021 that would reduce the credit amount you qualify for. The following are some of the most common reasons you may need to return the Child Tax Credit:

  • In 2021, your earnings were higher than in 2020.
  • You’re taking credit for the fact that there are fewer children. If you divorced and your ex-spouse claimed your children as dependents on their taxes, this may happen.
  • You didn’t have a primary residence in the United States. Your primary home must have been in the United States for more than half of the year to qualify for this credit.

You were given an additional stimulation check.

Some consumers received two $1,400 checks instead of one during the third stimulus payouts. The IRS advised returning the additional check and provided directions on how. If you deposited both checks but haven’t returned the extra money, the IRS will likely approach you about it.

In most circumstances, stimulus funds will not result in a tax bill. If you only received the three payments in 2020 and 2021, you probably won’t have to pay anything back. However, if you overestimated a tax credit, received an overpayment on the Child Tax Credit, or received a double payment, you may owe money.

Read More:- These Are the States That Provide Inflation Stimulus Checks. Are You From One of These States?

Start putting money aside in a savings account if you think you’ll need to return any stimulus payments, so you’re financially prepared. The IRS only gives you a certain amount of time to pay your tax payments, so having the cash on hand makes it more accessible.

Read More:- The Money Is on the Way Surprising Inflation Stimulus Checks – Five States Have Confirmed That They Will Be Giving $500 Cash

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