With lawmakers negotiating another round of coronavirus relief aid, many Americans are eager to know if and when they will receive a third stimulus check. In addition to the Congressional deadline for passing legislation, there is another factor that can influence stimulus payments: its 2020 tax returns.
The reason comes down to the confluence of the tax reporting season and the expectation that Congress will pass the next relief bill in mid-March. The IRS on Friday officially begins accepting tax returns, with the filing window closing on the usual April 15th date.
This effectively means that the agency can start distributing stimulus checks in the middle of the tax season, which can affect how much Americans receive – especially families who lost income last year or who had a child in 2020. The reason: the IRS relies to the maximum on each individual’s recent tax return to determine payment of the stimulus check.
If a taxpayer fails to file its 2020 tax returns before Congress approves its next relief bill, the agency is likely to rely on the 2019 tax return to calculate the payment of the stimulus check – and that 2019 return may not reflect losses income during last year’s economic crisis or a new child, for example.
“I would suggest that people register as soon as possible, especially with 75% of taxpayers receiving a tax refund of nearly $ 3,000 last year,” said Lisa Greene-Lewis, tax expert at TurboTax. “We are hearing a lot of people saying, ‘I had a baby in 2020, how will the IRS know this? When they issued the previous stimulus payment, they didn’t know it.'”
Legislators are currently negotiating details of the next stimulus package, including what income limits should apply for the next round of checks, called Economic Impact Payments. Under one plan, Democrats could lower annual income limits to qualify for a payment to $ 50,000 or less for single people and $ 100,000 or less for couples, according to the Washington Post.
On February 8, however, House Democrats backed down on lower income limits, proposing to keep income limits on the same level as previous checks. This would ensure that the total payment of $ 1,400 would go to individuals who earn $ 75,000 or less, while couples who earn $ 150,000 would be entitled to $ 2,800. Payments would be reduced to incomes above those levels, eliminating entirely for single people who earn $ 100,000 or more and couples who earn $ 200,000 or more.
Why declaring taxes as quickly as possible can bring more benefits
Taxpayers must consider two issues: their income in 2019 versus 2020 and whether they had a child last year, noted Mark Jaeger, director of tax development at TaxAct.
Consider a single worker who earned $ 90,000 in 2019, but lost her job during last year’s mass layoffs and ended up earning $ 45,000 in 2020. If she doesn’t complete her 2020 tax returns until Congress passes the next aid project, the IRS would likely base its third stimulus check on its 2019 earnings.
In that case, she would likely receive less than $ 1,400 because the IRS would use her $ 90,000 earnings in 2019 to determine her payment. (The exact amount would depend on the elimination amounts set by law.) But if she submits her 2020 income tax return as soon as possible, the IRS will record her most recent annual income as $ 45,000 – qualifying her for full payment of $ 1,400 based on the income limits now under discussion.
The same situation can occur for people who welcomed a child into their family in 2020. If the IRS depends on your 2019 income tax return, the agency will not be aware of the new family member. As a result, the claimant would not receive the proposed payment of $ 1,400 for a dependent to which he is entitled.
There may be a disadvantage in making advance deposits, especially for people whose income has increased in 2020, compared to 2019, and has exceeded the income limit. If that is the case, Jaeger said, you may want to wait until the legislation is passed to file your taxes.
Consider a single contributor who earned $ 70,000 in 2019, but was promoted and earned $ 90,000 in 2020 – which is $ 40,000 over the salary threshold for full payment of the stimulus.
“You are now on the brink of elimination,” said Jaeger. “You’d better wait because the IRS will use your 2019 information” to determine your third stimulus check.
To be sure, the details of the third stimulus checks are still fluid and the rules may end up differing from the two previous stimulus checks, noted Eric Bronnenkant, head of tax at the financial services company Betterment. But, he added, “it is more likely that someone’s income declined in 2020 and that depositing earlier would help them qualify for more money.”
Adjustments later?
It is possible that the IRS will create a way to reconcile stimulus payments later this year, said Jaeger. For example, if your income dropped in 2020, but you don’t file your taxes before the next exemption law is passed, it could allow taxpayers to claim additional funds in the summer – instead of waiting until next year’s tax return. .
The IRS is eyeing the stimulus bill taking shape in Congress and “creating a series of contingencies based on any new legislation,” said Ken Corbin, the new IRS taxpayer experience director, in a conference call with reporters at Thursday. “We are thinking about what that experience is for taxpayers who may be entitled to more.”
He added: “If someone is able to file an accurate return early, then we encourage you to file that return as soon as you can.”
Stimulus and tax checks
Taxpayers who have not received their full stimulus payments in the first two rounds of checks can also submit their 2020 tax returns quickly. In doing so, they will be able to claim additional money on Form 1040s through what the IRS calls Recovery Credit Rebates or an adjustment between what you received from the IRS and what you should have received – as if your income decreased or you had a son in 2020.
The IRS has published a recovery discount credit spreadsheet to see if you can receive extra funds. The amount can then be entered on line 30 of IRS Form 1040. People who have received the full amounts of the first two stimulus checks will not have to insert anything into their 2020 tax returns, said Corbin of the IRS.
“Anyone qualified for a [stimulus check], who did not receive one or did not receive the full amount, can claim it in their 2020 tax returns, “he noted.” The credit will be paid as part of your refund. “