With legislators negotiating another round coronavirus assistance, many Americans are eager to learn if and when they will receive a third stimulus test. Apart from the time frame of Congress to pass the legislation, there is another factor that can affect stimulus payments: your tax returns for 2020.
The reason boils down to the confluence of tax filing season and the expectation that Congress will pass the next relief bill by mid-March. The IRS officially accepted tax returns on Friday, February 12, with the filing window on its usual April 15 date.
This effectively means that in the middle of the tax season, the agency could start distributing stimulus checks, which could affect how many Americans get – especially households that lost their income last year or had a child in 2020. The reason: the IRS relies on the individual’s most recent tax filing to determine the payment of their incentive check.
If a taxpayer does not file their tax returns for 2020 before Congress passes its next relief bill, the agency is likely to rely on their 2019 tax return to calculate their payment of stimulus checks – and that the proceeds for 2019 may not include revenue losses during the economic crisis of last year does not reflect. or for example a new child.
“I would suggest people file as soon as possible, especially with 75% of taxpayers receiving a tax refund of nearly $ 3,000 last year,” said Lisa Greene-Lewis, a TurboTax tax expert. “We hear a lot of people say, ‘I had a baby in 2020, how will the IRS know? When they issued the previous incentive payment, they did not know it.’
Legislators are currently negotiating the next stimulus package, including what income thresholds must apply for the next round of checks, called Economic Impact Payments. Under one plan, Democrats could lower annual income thresholds to qualify for a payment of up to $ 50,000 or less for singles and $ 100,000 or less for couples, according to the Washington Post.
On February 8, however, House Democrats narrowed the lower income limit, proposing to keep the income thresholds at the same level as for previous checks. This would ensure the full relief of $ 1,400 to individuals earning $ 75,000 or less, while couples earning $ 150,000 are entitled to $ 2,800 relief. Payments will decrease for income above these levels, and it will be phased out gradually for singles earning $ 100,000 or more and couples earning $ 200,000 or more.
Why you can file taxes as quickly as possible, you can get more
Taxpayers need to consider two issues: their income in 2019 versus 2020 and whether they had a child last year, Mark Jaeger, director of tax development at TaxAct, noted.
Take a single worker who earned $ 90,000 in 2019 but lost her job during last year’s dismissal and eventually earned $ 45,000 in 2020. If she did not file her 2020 tax returns by the time Congress approves the next relief bill, the IRS would likely base her third stimulus test on her 2019 earnings.
In that case, she would most likely receive less than $ 1,400 because the IRS would use her $ 90,000 income for 2019 to determine her payment. (The exact amount will depend on the phasing-out amounts set by law.) But if she files her 2020 tax return as soon as possible, the IRS will record her most recent annual income as $ 45,000, qualifying her for the full payment of $ 1,400. based on the income thresholds now being discussed.
The same situation may occur for people who welcomed a child into their family in 2020. If the IRS relies on their tax return for 2019, the agency will not be aware of the new family member. As a result, the plaintiff would not receive the proposed payment of $ 1400 for a dependent to which he is entitled.
There may be a downside to submitting early, especially for people whose incomes rose in 2020, compared to 2019, and exceeded the income threshold. If this is the case, Jaeger said, you may want to wait until the legislation is passed to file your taxes.
Take a single taxpayer who earned $ 70,000 in 2019, but got a promotion and earned $ 90,000 in 2020 – which is $ 40,000 above the full stimulus salary limit.
“You are now on the threshold of phasing out,” Jaeger said. ‘You better wait because the IRS will use your 2019 information’ to determine your third stimulus test.
To be sure, the details of the third stimulus checks are still fluid, and the rules may eventually differ from the two previous stimulus checks, noted Eric Bronnenkant, tax chief of the financial services industry Betterment. But he added: “It’s more likely that someone’s income will fall in 2020 and that filing would help qualify for more money sooner rather than later.”
Adjustments later?
It is possible that the IRS could create a way to reconcile stimulus payments later this year, Jaeger said. For example, if your income dropped in 2020, but your taxes were not filed before the next relief bill, taxpayers can claim the additional funds in the summer, rather than wait until next year’s tax file.
The IRS is monitoring the stimulus bill in Congress and “building a number of contingencies based on any new legislation,” Ken Corbin, the new chief taxpayer at the IRS, said in a Thursday conference with reporters. “We are thinking about what the experience is for taxpayers who may be able to earn more.”
He added: “If anyone can submit an accurate return earlier, we encourage them to submit the return as soon as they can.”
Stimulus checks and taxes
Taxpayers who did not receive their full stimulus payments in the first two rounds of checks may also want to file their 2020 tax returns quickly. By doing so, they will be able to claim the extra money on Form 1040s through what the IRS calls the Repayment Credit, or an adjustment between what you received from the IRS and what you should have received – such as if you had reduced income or you had a child in 2020.
The IRS has published a Recovery Sheet Credit worksheet to see if you can receive additional funds. The amount can then be entered on IRS Form 1040 on IRS. People who received the full amounts under the first two stimulus checks need not enter anything on their tax returns for 2020, Corbin of the IRS said.
“Anyone who is eligible for a [stimulus check], who did not receive one or did not receive the full amount, can claim it on their 2020 tax returns, “he noted. ‘The credit is paid as part of your repayment.’