The bulk of us has received pandemic-related assistance in the previous two years. Many of us are wondering if some of those funds are taxed as we race to file our 2021 reports. Will our refund be decreased or, worse yet, will we owe money?
Here are the final stimulus checks, the $1,400 payments that began arriving in bank accounts in March 2021. Additional COVID-related financial aid is also offered, such as higher Child Tax Credit payments, additional unemployment benefits, and emergency SNAP benefits.
Checks for stimuli
Last spring, millions of Americans received a stimulus check worth up to $1,400. Taxes are not levied on these stimulus monies.
“No, you cannot deduct the Third Economic Impact Payment from your gross income,” according to the IRS. As a result, you will not include the third payment in your taxable income or pay income tax on it on your 2021 Federal income tax return.”
Unfortunately, there appear to be some internet myths circulating among folks who believe stimulus cheques are being taxed. If you come across any such false information, disregard it.
Finally, there’s a reason why your tax bill this year is more than usual. Taxes are not applied to stimulus checks.
Tax Credit for Children (Advanced)
Child Tax Credits will be available to the majority of American families with children beginning in 2021. These payments, which ranged from $250 to $300 per child (depending on their age), arrived in bank accounts across the country from July to December.
Payments from the Child Tax Credit, like stimulus monies, are not taxable. This could explain why you’re getting a lesser return this year than usual:
1. In a “normal” year, you get a $2,000 credit per eligible child. If you have three children, that’s a $6,000 credit.
2. Pretend your three children are ages six, eight, and 10. Thanks to the American Rescue Plan, the total credit has been doubled to $3,000 per child. If you received $250 every month between July and December 2021, you’ve already gotten $1,500 of the $3,000 owed ($250 x 6 = $1,500).
3. You’ll claim the remaining half of the Child Tax Credit on your 2021 tax return. In other words, you file for a $1,500 credit per child instead of the $2,000 credit you would normally claim. As a result, instead of a $6,000 credit, you’ll only earn $4,500 this year.
4. even though it may appear that you are being “shorted,” you are profiting. In a normal year, you would have received $6,000 for three qualified children. The advanced Child Tax Credit will provide you $9,000, but it won’t be as much as normal at tax time.
Bottom line: If you receive a smaller refund, it’s possible that you received a portion of the Child Tax Credit early. Advanced Child Tax Credits are exempt from taxation.
Unemployment is on the rise.
Congress exempted the first $10,200 in unemployment benefits from federal taxes for the 2020 tax year. For the fiscal year 2021, the same cannot be said.
Around 25 million people filed for jobless benefits in 2021. Every one of the 25 million persons who receive these benefits is required to pay federal taxes (as usual). Whether or not you owe state taxes on unemployment benefits is determined by where you live.
The states listed below either don’t have a state income tax, don’t tax unemployment benefits, or only tax a portion of it. Make sure you’re familiar with your state’s laws.
If you received unemployment benefits in 2021, you should have received a Form 1099-G that shows the amount you received as well as the amount withheld for taxes.
It’s inconvenient to find out that taxes are due, especially if you’re unemployed or have recently returned to work. If your tax bill is too substantial to pay in full right now, you can request a payment plan from the IRS, which will allow you to pay the rest in monthly installments. On the IRS’s website, you can find an installment agreement.
Finally, if you received unemployment benefits in 2021, you will be required to pay federal taxes on those funds. Whether or whether you must pay state taxes is determined by where you live.
SNAP, P-EBT, and TANF benefits
Following the COVID-19 epidemic, the USDA authorized state waivers allowing for emergency Supplemental Nutrition Assistance Program (SNAP) allotments.
Furthermore, in 2021, Congress extended the Pandemic Electronic Benefits Transfer (P-EBT) program, which ensures that children from low-income families get the nutrition they need. The Temporary Assistance for Needy Families (TANF) program is another option for low-income families. Non-taxable benefits are those that are not subject to taxation.
Finally, benefits from SNAP, P-EBT, and TANF are tax-free.
If you find that you owe more than you expected or that you receive a lesser refund than you expected, take another look at your taxes. Make sure none of the non-taxable advantages are included in your earnings.