The COVID-19 pandemic has taken a toll on just about everyone as of this writing, and not just physically speaking. The economic impacts of the pandemic have been felt far and wide, and the three stimulus payments most Americans have received were a welcome infusion of cash.
The payments, also referred to as Economic Impact Payments or EIPs, have caused some confusion among recipients. Many of our clients have asked whether the payments are considered taxable income, how the EIPs will affect their eligibility for benefits, and other questions. We have gathered some of the most frequently asked questions about stimulus payments here, along with answers that we hope will prove helpful.
Are Stimulus Payments Considered Income?
No. The three stimulus payments that have gone out are actually a tax refund paid to taxpayers in advance. In other words, if you were going to receive a tax refund anyway, you just got it a bit early. If the amount of refund to which you would have been entitled is more than the stimulus amount, you will still get a refund when you file your taxes.
Will Receiving an IRS Stimulus Payment Keep Me from Being Eligible for Benefits?
No. Not only is your stimulus payment check not considered income, but because it is a tax refund, it is subject to the provisions of 26 USC §6409. What that means is that your stimulus payment is not countable as a resource for purposes of determining your eligibility for federal benefits for a period of 12 months from the time you received it. Your stimulus payment is also not countable as a resource when determining eligibility for state or local programs financed wholly or partly with federal funds. Such programs include Medicaid and SSI.
If I Give Away My Stimulus Money, Will That Affect My Eligibility for Medicaid?
Not if you made the gift in a timely fashion. If you received a stimulus payment check and decided to give the funds to someone else, like an adult child, that gift is not subject to the Medicaid “look-back” period for transfers of assets for less than fair market value. Ordinarily, if you make such a transfer within the five years before applying for Medicaid benefits, the transferred assets are considered when determining your eligibility for Medicaid. A transfer for less than fair market value could make you ineligible for Medicaid benefits for a period of time.
However, if you held on to the funds for the 12-month period during which your stimulus was countable neither as income nor a resource, and then gave it away, it would be countable. Medicaid’s rules regarding transferring assets apply to income and resources. After 12 months, the stimulus money is countable as a resource.
What Happens if a Stimulus Check Was Sent to Someone Who Has Died?
It depends. Because the stimulus payments are technically advance tax refunds, a deceased person might still be eligible to receive a stimulus payment depending on whether they were alive for at least part of a tax year on which the stimulus was based. Strange as it may sound, it wouldn’t matter if the person died before the checks were sent out.
For instance, the first and second stimulus payments were based on tax year 2020 (though the IRS used 2018 and 2019 tax returns to determine who was eligible). If a person was alive on January 1, 2020, even if they died the next day, they would have been eligible for both the first and second stimulus payments. The third stimulus payment was tied to tax year 2021, meaning that a person who was alive on January 1, 2021 qualified for the third stimulus. A person who died on December 31, 2019, however, would not be eligible for a payment.
Could Medicaid Estate Recovery Claim My Late Spouse’s Stimulus Payment?
Not if your spouse died within the 12-month exemption period during which the stimulus payment counted neither as income nor as a resource. Ordinarily, when an individual receives Medicaid benefits to pay for long-term care, Medicaid can recoup some of those benefits from the resources of the estate after the recipient dies.
But Medicaid estate recovery rules do not override 26 USC §6409. So if your spouse died during the month in which he or she received a stimulus check, or in the 12 months following, Medicaid cannot take that payment away from you.
Could My Stimulus Payment Be Garnished by a Creditor?
Probably not. The first of the three stimulus checks that went out could not be seized by federal or state agencies because of a debt you owed, unless that debt was back child support. Unfortunately, once the $600 payment hit a bank account, the protection evaporated and the money was subject to garnishment or federal or state offset.
To avoid this outcome for people who were already in dire financial straits and really needed the stimulus payment, better protections were put in place by state and federal legislatures. That made the payments much less vulnerable.
If you have questions about stimulus payments that were not answered here, we invite you to contact our law office to schedule a consultation.