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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a discussion about how to spring clean your finances, including tidying up your digital life.
Then, we pivot to this week’s question from Naomi, who left us a voicemail on the Nerd hotline: “I had a question about the stimulus payments — not the unemployment, but the stimulus checks that came. I got a $1,200 one and $600 one, which I received in 2020 and the second one which I received, actually in January, and I was wondering how it will impact our taxes and in particular if one is going to get a 1099 or some document from the government that will need to be included when we are filing taxes. Thank you.”
Check out this episode on any of these platforms:
You won’t owe taxes on your stimulus payments. They’re technically considered an advance on a tax credit. If you want to learn more about where the IRS spells this out, check out their “,” which has a lengthy Q&A.
Some people received “too much” in their stimulus payments from the IRS due to outdated information. These individuals don’t have to pay back the amount they were overpaid. If you still haven’t received a stimulus payment that you believe you’re eligible for, you can claim the “Recovery Rebate Credit” on your 2020 tax return.
Unemployment benefits that came from COVID relief packages are taxable, however. But the latest relief bill from Congress exempts the first $10,200 of unemployment benefits you received last year from federal taxes. And if you already filed your taxes, the IRS should refund the amount you paid automatically. If you’re still receiving unemployment benefits, though, consider putting some away in a savings account to cover your future tax obligations. And you can have your state withhold a flat 10% of your payments for taxes by filling out form .
If you’re facing a tax bill and aren’t sure how to cover it, look into . Payment plans, offers in compromise and asking to be deemed "Currently Not Collectible" by the IRS may help ease the burden. And if you have any questions about your taxes this year, .
Stimulus money isn’t taxable. So use that money to cover your bills, build up an emergency fund or to treat yourself.
Unemployment income is taxable. Try to get ahead of your tax bill if you can by setting aside money from each check or having it withheld for you.
If you can’t pay your tax bill, you have options. Look into setting up an installment plan, or, if you’re really struggling, you may be eligible for an offer in compromise.
Have a money question? Text or call us at 901-730-6373. Or you can email us at . To hear previous episodes, go to the