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Stimulus Checks Won’t Reduce Future Tax Refunds


Quick Take

Social media posts falsely claim that federal payments from the COVID-19 stimulus package could reduce taxpayers’ future refunds. The Internal Revenue Service says the payment “will not reduce your refund or increase the amount you owe when you file your 2020 tax return next year.”


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The IRS has begun dispersing money from the $2 trillion COVID-19 economic stimulus package. But memes and videos on social media are spreading misleading messages about made-up consequences for those who receive the payments.

A common claim in these posts is that payouts from the Coronavirus Aid, Relief, and Economic Security Act — which provides $1,200 lump-sum payments to most individuals making less than $75,000 a year — will either reduce future tax refunds or will have to be paid back.

One viral video originally posted on TikTok has been taken down from that site, but continues to circulate on Facebook, making the claim: “See, what they don’t tell you is that this is just an advance on your next tax return… Next year, you’re automatically going to owe $1,200 come tax season.”

That’s not true.

The claim in the video appears to stem from a misunderstanding of the language in the law, which uses a tax credit as the vehicle to get stimulus payments to individuals.

In a March report exploring options to stimulate the economy as it faltered in the face of the COVID-19 pandemic, the Congressional Research Service said: “One mechanism to provide cash payments relatively quickly is to create a new refundable tax credit and then advance it to households before they would otherwise claim it on their income tax returns.”

Later that month, when the CARES Act became law, that’s exactly what it did.

The CARES Act created a new tax credit for taxes that will be due on income earned in 2020, but it’s available to eligible individuals now. The credit allows for payments of $1,200 to most individuals earning less than $75,000, as we said, and a reduced amount (on a sliding scale) to individuals who make up to $99,000. Couples who are married and file joint taxes can get $2,400 if their combined income is under $150,000, and parents can collect $500 per child.

Like the familiar Earned Income Tax Credit or the Child Tax Credit, this tax credit does not need to be repaid.

The Treasury Department confirmed that to us in an email, and the IRS website explains, “the Payment is not income and you will not owe tax on your Payment. It will not reduce your refund or increase the amount you owe when you file your 2020 tax return next year.”

Similarly, taxpayers receiving a stimulus payment based on a previous year’s income level would not have to pay anything back if their earnings in 2020 exceed the program’s income limits, according to the IRS.

Still, confusion persists online. In an example of just how pervasive the misunderstanding is, a copy of a chart showing an accurate description of the law’s allowances has been marked up and shared with misleading captions.

One such post highlighted the section of the chart that said: “This is an advance on a new tax credit on your 2020 taxes. So if you get your stimulus check, you will not get that credit when filing for 2020 taxes.” That part is correct — if a taxpayer collects the stimulus payment now, he can’t collect it again when he pays his 2020 taxes. But the marked up chart was shared with this caption: “They gave you YOUR MONEY back in exchange for your money next year.” That’s not true.

The individual who originally posted the chart, Fabian Saldivar of FS Tax Service Inc. — after seeing how social media users were responding — made it clear in his caption that the stimulus money is available through a new credit and it will not have to be repaid. In a phone interview with FactCheck.org he said, “they think it will get taken out of next year’s taxes, which is not true.”

Update, April 20: To address reader questions, we added that taxpayers who receive stimulus payments based on a previous year’s income would not have to pay anything back if their 2020 earnings exceed the program’s income limits.

Editor’s note: FactCheck.org is one of several organizations working with Facebook to debunk misinformation shared on social media. Our previous stories can be found here.

Sources

U.S. House. H.R.748, Coronavirus Aid, Relief, and Economic Security Act. 27 Mar 2020.

Congressional Research Service. “COVID-19 and Direct Payments to Individuals: Considerations on Using Advanced Refundable Credits as Economic Stimulus.” 17 Mar 2020.

Internal Revenue Service. “Economic Impact Payment Information Center.” Accessed 16 Apr 2020.

Saldivar, Fabian. Tax professional, FS Tax Service Inc. Telephone interview. 17 Apr 2020.