End Your Tax Problems. Start with Free Consultation.

Can the IRS Take Your Stimulus Check?

Between March 2020 and March 2021, the United States government passed legislation to send out stimulus checks to eligible taxpayers. The overall goal was to help boost sales and revenue for retailers and manufacturers. These checks would be able to help taxpayers on an individual basis as well as benefit the national economy as a whole. 

There are currently no new plans for any more stimulus checks. However, there are still questions that persist as to what can happen to received stimulus funds. 

For example, what happens to these checks for individuals facing financial troubles with the IRS or who have outstanding balances? The answer to this question will depend on a few qualifying factors. 

Why Were Stimulus Checks Being Sent?

Although millions of Americans received stimulus checks, not everyone was eligible. The different eligibility rules could have dictated whether or not you received a check in the first place. 

A total of three checks were sent to eligible recipients as part of the CARES Act of 2020, the Consolidated Appropriations Act, and the American Rescue Plan of 2021. The details of each stimulus round were as follows.

CARES Act

The first round of stimulus checks was granted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020. 

The U.S. government made a total of 162 million payments to the American people, and the total cost ended up being around $271 billion. The payments were set for $1,200 per individual, $2,400 for couples that file taxes jointly, and $500 for every qualifying child. 

The eligibility requirements were the most relaxed of all payment rounds:

  • $75,000 or less annual income for individual taxpayers
  • $112,500 or less annual income for head of household taxpayers
  • $150,000 or less annual income for married couples filing jointly 

Consolidated Appropriations Act

The second round of stimulus checks was granted under the Consolidated Appropriations Act in late December 2020. 

The total amount of money for this second round of checks was roughly $135 billion. The payments were set for $600 per individual, $1,200 for couples that file taxes jointly, and $600 for every qualifying child. 

The eligibility requirements were a little more strict than the first round of payments:

  • $75,000 or less annual income for individual taxpayers
  • $112,500 or less annual income for the head of household taxpayers
  • $150,000 or less annual income for married couples filing jointly 

American Rescue Plan

The third and likely final round of stimulus checks was granted under the American Rescue Plan in March 2021. 

The overall cost of the latest round of checks is estimated to be nearly $411 billion and is the most expensive round thus far. The payments were set for $1,400 per individual, $2,800 for couples that file taxes jointly, and $1,400 for every qualifying child. However, the total could be less if the taxpayer’s total annual income was above certain thresholds. 

The phased-out eligibility requirements were the most strict of all three rounds of payments:

  • $80,000 or less annual income for individual taxpayers
  • $120,000 or less annual income for the head of household taxpayers
  • $160,000 or less annual income for married couples filing jointly

What Can You Spend Your Stimulus Check Money On?

The U.S. government didn’t put any stipulations on how recipients were supposed to spend stimulus checks. The goal of the overall stimulus package was to provide help to Americans facing economic hardship and get them to spend money on products and services to boost the national economy. 

With that said, some patterns developed during the rollout of the three stimulus checks:

  • Most taxpayers who received the first stimulus check spent it on household expenses. Nearly 75% of recipients spent their money on essential household-related bills as unemployment was almost 15% at the time, and the future was uncertain. Approximately 15% saved the money, and around 10% used it to pay off their balances.
     
  • The second and third rounds of stimulus checks were sent out when society had largely stabilized. As a result, nearly 50% of recipients used their second and third checks to pay any owed money. Only around 20% spent the money, while the remaining 30% decided to save it instead. 

Is My Stimulus Check At Risk For Garnishment?

The answer to this question is fairly complicated and is a mixture of yes, no, and it depends. Although that answer is a little bit frustrating, there are a lot of factors at play here as certain rounds of the overall stimulus package have protections that others do not. Some of your checks might be safe depending on who you owe, but others might not. 

It’s important to note that the IRS does not consider these stimulus payments to be income, so you will not need to pay taxes on any stimulus money you receive. If you didn’t receive a check for the total amount of stimulus money, you could claim your stimulus as a Recovery Rebate Credit. However, doing so could potentially have consequences, which we’ll explore further. 

It might be best to consult tax professionals if you have any questions or issues relating to your stimulus payments. In the meantime, here is a breakdown of the various protections for each stimulus payment:

The First Payment

Under certain circumstances, the government can take your first stimulus check. Your first payment:

  • Could be seized by state or federal agencies to pay past-due child support payments.
  • Could be seized by the state to pay any unpaid back taxes.
  • Could be seized to pay back overpaid federal benefits such as unemployment.
     
  • Could be seized by banks or private creditors to cover outstanding balances. However, some states, such as California, issued orders forbidding these institutions from garnishing stimulus checks.
  • Is protected from landlords, nursing homes, and care facilities demanding overdue rent payments.
  • Is protected from being garnished due to overdue car payments.  

The Second Payment

Your second stimulus check can also be taken. Your check:

  • Could be seized by the state to pay back taxes.
  • Could be seized to pay back overpaid federal benefits such as unemployment. 
  • Protected from being garnished to pay financial balances, including child support or federal back taxes.
  • Is protected from being garnished by banks or creditors to pay outstanding dues. 
  • Is protected from being garnished for credit card or medical balances.
  • Is protected from landlords, nursing homes, and care facilities demanding overdue rent payments.
  • Is protected from being garnished for overdue car payments. 

The Third Payment

Since this third payment was made possible due to budget reconciliation, the protections are slightly different from the first two payments. The third payment:

  • Could be seized to pay for a credit card or medical obligation.
  • Could be seized to pay for private dues in the event of a civil judgment ruling.
  • Could be seized to pay for private creditors and collectors.
  • Is protected from outstanding tax dues to the state and overdue child support payments.
  • Is protected from bank garnishment for unpaid balances.
  • Is protected against landlords unless they receive a civil judgment to seize it.
  • Is protected against overpayments of federal benefits such as unemployment.

Will The IRS Make You Repay Your Stimulus Check Money?

The IRS has made it very clear that any stimulus payments will not be recorded as income tax. These checks will not reduce any potential tax refunds that you may receive, and they will not increase the total amount of money you owe on your taxes. You will also not have to repay the stimulus check if you recently started a job that would have made you ineligible to receive them in the past. 

The only reason the IRS might request repayment is if they mistakenly sent you more money than you were eligible to receive or if you received the money in your stimulus check for someone who died. 

The Takeaway

You probably shouldn’t be concerned about the IRS possibly taking your stimulus check or requesting that you pay it back. Although there are a few specific instances where the IRS might need to speak with you about your stimulus, they are rare and won’t apply to a vast majority of Americans. 

However, other financial institutions or agencies can garnish your check or outright seize them. Each check has a varying degree of possible protection, so you probably won’t lose all three. 

If you are currently in a position where you owe money and have had any of your checks garnished for any reason, you should consult with Coast One Tax Group today. These tax professionals can help you to get to the bottom of these garnishments and provide a fresh start for your finances


Sources:

Stimulus Check Definition | Investopedia

What to Know About All Three Rounds of Coronavirus Stimulus Checks | PGPF.org

Here’s How Americans Spent Their Stimulus Checks | Forbes

Your third stimulus check can be seized. Here’s what to know. | CNET.com

Budget Reconciliation: The Basics | Budget.House.gov

Coronavirus: Will My Stimulus Check(s) Be Taxed? | CNBC.com