With lawmakers negotiating another round help with coronavirusMany Americans would like to know if and when they will receive a third stimulus check. Aside from Congress’ time frame for passing the legislation, there is one other factor that can affect stimulus payments: your 2020 tax return.
The reason boils down to the confluence of the tax return season and the expectation that Congress will pass the next exemption law in mid-March. The IRS officially begins accepting tax returns on Friday, with the filing window closing on the usual date of April 15.
That basically means that the agency may start handing out incentive checks in the middle of tax season, which could affect how much Americans get – especially households that lost income last year or had children in 2020. The reason: The IRS relies the most on each individual’s most. recent tax return to determine the payment of their stimulus check.
If a taxpayer doesn’t file his 2020 tax return before Congress passes its next bill, the agency will likely rely on his 2019 tax return to calculate the stimulus check payment – and that 2019 return may not reflect income losses during the economic crisis. from last year. or a new child for example.
“I would suggest that people file as soon as possible, especially since 75% of taxpayers received a tax refund of nearly $ 3,000 last year,” said Lisa Greene-Lewis, a tax expert at TurboTax. “We hear many people say, ‘I had a baby in 2020, how will the IRS know this? When they issued the previous incentive payment, they didn’t know.’ ‘
Currently, lawmakers are negotiating the details of the next stimulus package, including some income thresholds should 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 to $ 50,000 or less for singles and $ 100,000 or less for married couples, according to the Washington Post.
However, on Feb. 8, House Democrats pushed back on those lower income limits and suggested keeping the income limits at the same level as the previous controls. That would ensure that the full $ 1,400 aid payments go to individuals making $ 75,000 or less, while couples making $ 150,000 are entitled to $ 2,800 aid payments. The payments would decrease for incomes above those levels, disappearing completely for singles earning $ 100,000 or more and couples earning $ 200,000 or more.
Why file taxes ASAP can bring you more
Taxpayers should consider two things: their income in 2019 versus 2020 and whether they had a child last year, said Mark Jaeger, TaxAct’s director of tax development.
Consider a single employee who made $ 90,000 in 2019, but who lost her job in last year’s massive layoffs and eventually made $ 45,000 in 2020. If she doesn’t file her 2020 tax return by the time Congress’s next exemption bill the IRS would likely base its third incentive check on its 2019 earnings.
In that case, she would most likely receive less than $ 1,400, as the IRS would use her 2019 earnings of $ 90,000 to determine her payment. (The exact amount depends on the phasing out amounts set by law.) But if she files her 2020 tax return as soon as possible, the IRS records her most recent annual income as $ 45,000 – making her eligible for the full payment. of $ 1,400 based on the income limits now under discussion.
The same situation can arise for people who have a child in their family in 2020. If the IRS relies on their 2019 tax returns, the agency won’t be aware of the new family member. As a result, the plaintiff would not get the proposed payment of $ 1,400 for a dependent to which he is entitled.
There may be a downside to applying early, especially for people whose income has increased in 2020 compared to 2019 and crossed the income threshold. If so, Jaeger said, you may want to wait until after the legislation is passed to file your taxes.
Take a single taxpayer who made $ 70,000 in 2019 but got a promotion and made $ 90,000 in 2020 – that’s $ 40,000 above the salary limit for the full incentive payment.
“You’re on that threshold of winding down now,” said Jaeger. “You better wait because the IRS will use your 2019 info” to determine your third stimulus check.
Sure enough, the details of the third stimulus checks are still fluid, and the rules could differ from the two previous incentive checks, noted Eric Bronnenkant, chief tax at financial services provider Betterment. However, he added, “It is more likely that someone’s income will have declined by 2020 and filing it earlier would help qualify for more money.”
Adjustments later?
It’s possible the IRS could create a way to reconcile stimulus payments later this year, Jaeger said. For example, if your income fell in 2020, but you don’t file your taxes before the next deduction bill is passed, that could allow the taxpayer to claim the extra money over the summer – instead of waiting for the next tax return. year.
The IRS is watching the incentive bill taking shape in Congress and “is building some contingencies based on new legislation,” said Ken Corbin, the new chief taxpayer experience officer at the IRS, in a conference call with reporters on Thursday. . “We’re thinking about what that experience is for taxpayers who might be entitled to more.”
He added: “If someone is able to file an accurate return earlier, we encourage them to file that return as soon as possible.”
Stimulus Checks and Taxes
Taxpayers who have not received their full incentive payments in the first two rounds of audits may also want to quickly file their 2020 tax returns. By doing this, they can claim the extra money on Form 1040s through what the IRS calls the Recovery Rebate Credit, or an adjustment between what you received from the IRS and what you should have received, such as if your income has decreased or you had a child in 2020.
The IRS has published a worksheet for Recovery Rebate Credit to see if you can receive additional money. The amount can then be entered on line 30 on IRS Form 1040. People who have received the full amounts under the first two incentive checks don’t need to enter anything on their 2020 tax returns, said Corbin of the IRS.
“Anyone who qualifies for one [stimulus check], who have not received one or have not received the full amount, can claim it on their tax returns for 2020, “he noted.” The credit will be paid as part of your refund. “