The third round of direct stimulus payments will begin to be disbursed to qualified taxpayers this weekend, the Biden government said on Thursday. This will be a welcome financial relief for millions of families who are still struggling with the coronavirus pandemic for a year.
Although the $ 1,400 payments are based on the most recent tax return that the Internal Revenue Service (IRS) has on file for each taxpayer, if you lose income in 2021 and become eligible for the third stimulus check for the first time – or for most of it – you can claim it in your 2021 tax returns, which you will file in 2022, says Garrett Watson, senior policy analyst at the Tax Foundation.
Qualified recipients who have a baby in 2021 will also be able to receive a dependent payment of up to $ 1,400.
“This is similar to the process now underway for residual claims claimed for the two previous payments,” says Watson. Qualified taxpayers who did not receive the first or second stimulus payment, or received an incorrect amount, but lost enough income in 2020 to qualify, can claim a Recovery Discount Credit on their 2020 Form 1040.
This means that if you won $ 80,000 in 2019, but only $ 60,000 in 2020, you can claim the credit.
Anyone with an adjusted gross income (AGI) below $ 75,000 and couples earning less than $ 150,000 will receive a total payment of $ 1,400 or $ 2,800, respectively. After these limits, there is a very sharp outflow of income: individuals who earn $ 80,000 or more, and couples who earn $ 160,000 or more, will not receive any third payments.
This small difference in AGI eligibility could encourage those above the income limit to reduce their taxable income to 2021 so that they too can obtain a check. This can be done by contributing to a traditional 401 (k) or IRA, among other strategies, which reduces the taxpayer AGI.
If an individual earning $ 80,000 contributes $ 5,000 to a traditional IRA or 401 (k), he would reduce his taxable income enough to reach the $ 75,000 AGI eligibility limit for the full stimulus payment, says Watson. They would then qualify for a payment of $ 1,400 when they declared their taxes in 2022.
Couples close to the income limit with dependents have even more money at stake. A couple with three children who earned $ 161,000 in 2020 would receive $ 0 now. But if the couple lost enough hours of work or contributed enough to a 401 (k) to reduce their AGI to $ 149,000 in 2021, they would receive $ 7,000 in retroactive incentives to pay in the next tax season, as well as a larger credit of child tax.
It is possible that the IRS will try to complete payments for those who lose income later this year, so that they do not have to wait until the next tax season to receive the benefit. But Watson says this is unlikely, and the IRS has yet to provide details on that process.
“The IRS hesitated to do this in the previous rounds, as it can cause more problems than it resolves,” like incorrect payment amounts, says Watson. That said, “the president’s executive order asking the Treasury to find ways to make payments to people who have not received them may force them to reconsider this.”
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