Is coronavirus stimulus payment in US an advance on 2020 tax refund? Fact Check

Messages spreading online claim that the $1,200 stimulus check (officially titled the “economic impact payment”) that most Americans will be eligible for amid the coronavirus pandemic is actually just an advance on their 2020 tax refund payment, resulting in tax refunds for 2020 being reduced.

MOSTLY FALSE

During the 2020 coronavirus pandemic, the US government announced that most citizens will be eligible for a relief payment based on their annual income. US citizens will be able to obtain a payment of up to $1,200 per person. The payments are expected to be made in April 2020, and are designed to help ease financial difficulties for lower paid workers as well as help keep the economy afloat as the country deals with the pandemic and its aftermath.

However, rumours online claim that this relief payment is merely an “advance” payment that will ultimately be taken out of a recipient’s tax refund payment for the tax year 2020 (which would be filed in 2021)

This is false.

Examples spreading online include –

No. The stimulus payment is actually an advance on your 2020 tax refund, and you won’t owe taxes on it. However, since the payment is an advance on your 2020 refund, it might lower your refund next year.

Much of the confusion appears to be have been caused by the fact that the stimulus payment is being paid to US citizens via the IRS tax infrastructure. This has meant that the stimulus payment is legally recognised as a 2020 tax credit, and is referred to in IRS literature as an “advance” payment because it is being paid in April 2020, when a payment of this type would normally be paid in 2021.

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However, this does not mean that the payment will be taken off the refund a person would normally expect on their 2020 tax return. Instead, the stimulus payment is considered an extra payment (a “special tax credit”) for 2020, on top of the refund that a person would normally expect, only it is being paid (i.e. advanced) earlier than when a person would normally expect their 2020 tax return refund.

Prachi Bhardwaj from Money.com explains the situation here –

Will this eat into my tax refund for 2020?
No. The ‘advance’ you’ve been hearing about is in reference to a special tax credit that’ll appear on the tax return you file in 2021 for the 2020 tax year — a tax credit that wouldn’t have been there if it wasn’t for these stimulus checks.
So the Internal Revenue Service isn’t giving you some of your 2020 tax refund upfront. The stimulus check will be in addition to what you would’ve otherwise expected.

 
So, for example, if a person normally expects a $1000 refund on their tax return, and this is the same for the 2020 tax year (which is filed in 2021) and they are given the full $1,200 economic impact payment, that person’s tax return refund is effectively increased to $2,200. $1,200 is “advanced” to the person in April 2020, meaning the remaining (and expected) $1000 is given to the person when they would normally expect it (probably in 2021.)

Again this point is further clarified by Brian Kim, CPA, who owns the popular ClearValue Tax YouTube channel. He discusses the claim below.

The complex legalese surrounding the IRS and tax law is the reason why such payments have to be classified in such a way, and this is largely the reason why the stimulus payment isn’t considered taxable, which is another false rumour that arose amid the confusion of this particular relief payment.

So, no, the stimulus payment will not affect a person’s tax refund for 2020, and no, the stimulus payment is not taxable.