Would the fourth stimulus check be taxed by the IRS?

Little is known about the exact details around the proposal for a fourth stimulus check, would it be recurring, how much would it be, would it be taxed?

Would the fourth stimulus check be taxed by the IRS?

The federal government has sent out $3,200 in stimulus payments over three different rounds to eligible adult Americans since the pandemic began. Even though payments in the third round haven’t finished going out there are calls for additional stimulus payments.

The first two rounds of Economic Impact Payments (EIP) were advanced payments on tax credits for 2020, while the third EIP is a tax credit for the 2021 fiscal year. Those who didn’t get the full amount, or any funds, from the first two rounds can now claim them through the 2020 Recovery Rebate Credit, if they are now eligible.

The stimulus checks are tax credits paid in advance

Since the EIPs are tax credits paid in advance, they are not taxable income. The payments were also protected from the Treasury Offset Program (TOP), whereby if you had an outstanding debt with the federal or state government, money couldn’t be garnished from the amount due.

This did not apply to private debt collectors in the third round of stimulus checks, as it had in some cases in the first two rounds. Congress passed the American Rescue Plan using budget reconciliation which didn’t allow such a measure to be included.

However, those who can claim any missing money due to income or tax situation using the Recovery Rebate Credit on their 2020 income tax return may find a different situation. The stimulus tax credit cannot be used to offset your federal taxes according to IRS guidance published in March. But any missing money that could be claimed can be used to offset state and other federal debts. The IRS will send a letter to notify taxpayers if this is the case.

The Treasury Offset Program (TOP) is allowed to withhold money from your tax return for the following reasons:

  • Past-due federal student loans (currently suspended through 30 September, 2021)
  • Past-due court-ordered child support payments
  • Any unemployment compensation overpayment that you must pay back
  • Past-due state income taxes
  • Back taxes owed from previous years
  • Outstanding debts with federal agencies other than the IRS

Would the fourth stimulus checks be taxed?

Although the fourth stimulus checks are just conjecture for the time being, logic would dictate that they would be modeled on the previous EIPs or along the lines of the enhanced Child Tax Credit. Once again, they would most likely be a tax credit paid in advance. However, with Republican lawmakers voting in lockstep against the American Rescue Plan and indicating similarly for future spending proposals coming down the pipeline, Democrats would once again need to use budget reconciliation to have any chance of passing a bill that would include any such checks.

This would mean that certain protections like those against private debt collectors grabbing the checks ahead of time would have to be left out again. Likewise, there was dissent among Democrats in Congress about targeting the third stimulus checks to reduce the overall cost. Any fourth stimulus check, or recurring stimulus checks as 76 congressional Democrats are calling for, it can be assumed would have controls put on them. As President Biden’s next major piece of legislation takes form over the coming weeks and months more details should become available.