Can the IRS snatch your stimulus check money if you owe back taxes? What to know
Some individuals may not get the full $600 payment if they owe back taxes
For millions of Americans who did not receive their second coronavirus stimulus check, there's a quick fix: Claim the missing money when you file your 2020 tax return.
But some individuals may not get the full $600 payment if they owe back taxes, despite a promise by the IRS that it won't seize the economic impact payments to offset any government debts.
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The CARES Act, passed in March, provided cash payments of up to $1,200 for adults ($2,400 for couples filing jointly) and $500 per child under 17. And the $900 billion coronavirus relief package, approved at the end of December, authorized additional payments of up to $600 per adult ($1,200 for couples) and up to $600 for each qualifying child under 17.
Under the CARES Act, the IRS could only offset the stimulus payment if individuals owed back child support. The latest relief package — known as the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 — removed that provision, allowing people to receive the money no matter what debts they owed.
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The problem, however, is that the cash payments are actually an advance tax credit (the Recovery Rebate Credit) on 2020 tax returns, approved to be paid in two advance payments in 2020 and at the beginning of 2021. When you claim that credit on your 2020 return once tax season begins on Feb. 12, the IRS will factor it into your overall tax return, including liabilities.
That means, for instance, if you received a credit for a $600 stimulus check, but owe $500, you will receive a payment of $100.
"It is a tax credit against your 2020 income tax," the IRS said. "Generally, this credit will increase the amount of your tax refund or decrease the amount of the tax you owe."
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The IRS on Friday opened up Free File, free online tax preparation software, for taxpayers who earn less than $72,000 to prepare and file their income tax returns. Americans can also claim their stimulus check using the tool.
“For 2021, eligible taxpayers who did not receive the full amount can claim it as the Recovery Rebate Credit when they file their 2020 tax return,” the IRS said. “Use IRS Free File to file and claim this important benefit.”