The third round of direct incentive payments will begin to be paid to eligible taxpayers this weekend, the Biden administration said on Thursday. This will be a welcome financial relief for millions of households still struggling a year after the coronavirus pandemic.
While the $ 1,400 payments will be based on the most recent tax return that the Internal Revenue Service (IRS) has on file for each taxpayer, if you lose revenue in 2021 and become eligible for the third incentive check for the first time – or for part of it – you will be able to claim it in your 2021 tax returns, which you will file in 2022, says Garrett Watson, senior policy analyst at the Tax Foundation.
Eligible recipients who have a child in 2021 will also be able to collect a dependent payment of up to $ 1,400.
“This is similar to the process that is now underway for the residual loans requested for the two previous payments,” says Watson. Eligible taxpayers who did not receive the first or second incentive payment or received an incorrect amount but lost enough income in 2020 to qualify can now apply for a recovery reduction credit on Form 1040 from 2020.
This means that if you earn $ 80,000 in 2019, but only $ 60,000 in 2020, you could apply for the loan.
Anyone with an adjusted gross income (AGI) below $ 75,000 and married couples earning less than $ 150,000 will receive a full payment of $ 1,400 or $ 2,800, respectively. After these limits, there are gradual decreases in income: people earning $ 80,000 or more and couples earning $ 160,000 or more will not receive the third payment at all.
This small difference in AGI eligibility could encourage those who are even above the income limit to reduce their taxable income for 2021, so that they too can receive a check. This can be done by contributing to a traditional 401 (k) or IRA, among other strategies, which decreases a taxpayer’s AGI.
If a person earning $ 80,000 contributes $ 5,000 to a traditional IRA or 401 (k), they would reduce their taxable income enough to reach the $ 75,000 AGI eligibility limit for full payment of the incentive, says Watson. They will then qualify for a $ 1,400 payment when they file their taxes in 2022.
Couples close to income limits with dependents have even more money at stake. A couple with three children who earned $ 161,000 in 2020 would now receive $ 0. But if the couple lost enough hours at 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 in the next fiscal season, as well as a higher tax credit for children.
The IRS may try to supplement payments for those who lose income later this year, so they don’t have to wait until the next fiscal season to collect the benefit. But Watson says it’s unlikely, and the IRS has not yet provided details about the process.
“The IRS has been reluctant to do this in previous rounds because it can cause more problems than it solves,” such as incorrect payment amounts, says Watson. That being said, “the executive order of the president asking the Treasury to find ways to receive payments to people who did not get them may push them to reconsider this.”
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