You are correct that stimulus payments are definitely not taxable.
I suspect TurboTax initially calculated the return as if you had not received any stimulus payments. However, since payments were received, then that portion of the Recovery Rebate Credit must be removed. The Credit is only for reporting what you were entitled to but have not yet received. TurboTax will calculate this automatically.
Report what stimulus amounts were received. TurboTax will calculate if you are entitled to any additional amount and include it in the Recovery Rebate Credit.
To do this in TurboTax, follow these steps:
- Go to the search box and enter stimulus. Click the Jump to link.
- Answer Yes.
- At the next screen, Let's double-check the amount you received, answer No to edit the first-round and second-round amounts.
- If no stimulus amount was received, enter 0. An amount must be entered in each box. When finished, click Continue.
When watching the Refund Tracker, it would then appear as though you were being charged, even though the Refund Tracker was reduced for a different reason. The refund was reduced for removing a credit since you were not eligible, not for charging taxes.
The summary screen defaults to the maximums available before applying the income limits, but it would appear these maximums do not apply to your case.
When income is over the threshold, the stimulus payments are reduced by $5 for every $100 above the threshold based on your filing status. These thresholds start at the same amount, but are eliminated at different amounts for each payment due to the laws that were passed.
For the First Stimulus Payment, see: How do I calculate my EIP (Economic Impact Payment? It is for $1,200 for taxpayers and $500 for dependents.
If income is above the following amounts, the payment will be reduced pro rata.
Individuals: $75,000
Heads of Household: $112,500
Married, filing jointly: $174,000
If income is above these amounts, there is no stimulus payment sent with no qualifying children (under 17 years old):
Individuals: $99,000
Heads of Household: $136,500
Married, filing jointly: $198,000
For the Second Stimulus Payment, see Questions and Answers about the Second Economic Impact Payment: Calculating the Payment. It was for $600 for each taxpayer and for each dependent.
If income is above the following amounts, the payment will be reduced pro rata.
Individuals: $75,000
Heads of Household: $112,500
Married, filing jointly: $150,000
If income is above these amounts, there is no stimulus payment sent with no qualifying children:
Individuals: $87,000
Heads of Household: $124,500
Married, filing jointly: $174,000
For the Third Stimulus Payment, see https://www.irs.gov/newsroom/questions-and-answers-about-the-third-economic-impact-payment-topic-b-e.... It was for $1,400 for each taxpayer and for each qualifying dependent (under 19 years old).
If income is above the following amounts, the payment will be reduced pro rata.
Individuals: $75,000
Heads of Household: $112,500
Married, filing jointly: $150,000
If income is above these amounts, there is no stimulus payment sent with no qualifying children:
Individuals: $80,000
Heads of Household: $120,000
Married, filing jointly: $160,000
