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Stimulus payments not included in gross income

by Natalia Van Der Laan

The questions about stimulus checks go beyond the basic requirements and qualifications. Specific concerns and inquiries include its impact on gross income, the eligibility of adult dependents, the effect of the past-due child support, any federal and state debts on the amount of the stimulus check, the ability of creditors to access the funds, and so forth…

Very importantly, the stimulus payment is not includible in gross income. Consequently, it will not be included in taxable income on the Federal income tax return and it will not trigger a payment of an income tax. In other words, it will not reduce the refund or increase the amount owed on the 2020 Federal income tax return. The payment will also not affect the income level for purposes of determining eligibility for federal government assistance or benefits programs.

The rules controlling the additional $500 stimulus payment for adult dependents are different than for qualifying minor dependents. An individual claiming an adult dependent on the 2019 tax return will not receive an additional $500 and the adult dependent will not receive his or her own individual payment because they were claimed as a dependent. Similarly, if an adult dependent is claimed on the 2020 tax return, that adult dependent will not receive a credit in 2021.

The stimulus checks also raise several questions related to the issue of child support. Stimulus checks can be offset or taken to pay any past-due child support. The Bureau of the Fiscal Service will send a notice if an offset occurs. If a couple filed married filing jointly and a spouse filed an injured spouse claim with the recent tax return, each spouse will receive half of the payment and the payment of the spouse in arrears will be offset for past-due child support. Unfortunately, some spouses who filed an injured spouse claim still had their payment offset by the non-injured spouse’s past due child support. The IRS is aware of this issue and is working to resolve it as quickly as possible. At this time, no additional action needs to be taken. The injured spouse will receive the remainder of their payment when the issue is resolved.

Fortunately, the CARES Act limits the offsets of the stimulus payment to past-due child support. No other federal or state debts that usually offset tax refunds, including tax debt even if there is a payment plan in place, will reduce this payment. However, the stimulus payment is not protected from garnishment by creditors once the money is deposited into an individual’s bank account.

It is unknown at this time what action, if any, will need to be taken when filing a 2020 tax return. The IRS will provide this information at a later time. However, within fifteen days after the payment is made, the IRS will mail a notice regarding the Economic Impact Payment and this notice should be retained.

If the Notice was received, but not the payment, or if the payment check was either lost, stolen, or destroyed, a payment trace can be requested. The IRS then will either issue a refund check if the original check was not cashed or, if the check was cashed, the IRS will send a claim package with instructions and a copy of the cashed check. The Bureau of the Fiscal Service will then review the claim and the signature on the cashed check before determining whether a replacement check can be issued. The IRS will generate a response approximately six weeks after the request for a payment trace. A trace on the stimulus check follows the same process as a trace on a tax return.

Natalia Vander Laan is a Minden attorney practicing estate planning, family law, and workers’ compensation.