With lawmakers negotiating another round of helps to relieve coronavirus, many Americans are anxious to know if and when they will receive a third stimulus check. Aside from the time period of Congress to pass legislation, there is another factor that could influence stimulus payments: 2020 tax returns
The reason boils down to the confluence of the tax filing season and the hope that Congress will pass the next bill in mid-March. On Friday, the IRS officially began accepting tax returns on Feb. 12, closing the filing window on the usual April 15 date.
This means the agency may start distributing stimulus checks in the middle of the fiscal season, which could affect how much Americans get, especially households that lost income last year or had a child in 2020. The reason: the IRS relies on the most recent filing of taxes to determine the payment of its incentive check.
If a taxpayer does not file their tax returns by 2020 before Congress passes their next relief law, the agency is likely to rely on their 2019 tax return to calculate the payment of their tax return. stimulus check and that the 2019 statement does not reflect the loss of revenue during last year’s economic crisis. or a new child, for example.
“I would suggest that people file as soon as possible, especially with 75% of taxpayers receiving a tax return close to $ 3,000 last year,” said Lisa Greene-Lewis, a TurboTax tax expert. “We’re hearing a lot of people say,‘ I had a baby in 2020, how will the IRS know? When they issued the previous stimulus payment, they didn’t know it. “
Lawmakers are currently negotiating details of the next stimulus package, including what income thresholds must be applied for the next round of checks, called Payments for Economic Impact. Under one plan, Democrats could lower annual income thresholds to qualify for a payment of $ 50,000 or less for single people and $ 100,000 or less for married couples, according to the Washington Post.
On Feb. 8, however, House Democrats pushed back those lower income limits, proposing to keep income thresholds at the same level as for previous controls. This would ensure that full relief payments of $ 1,400 were earmarked for people earning $ 75,000 or less, while couples earning $ 150,000 would be entitled to $ 2,800. Payments would be reduced for income above these levels, completely eliminated for single people earning $ 100,000 or more and couples earning $ 200,000 or more.
Why can filing taxes as soon as possible get you more?
Taxpayers should consider two issues: their income in 2019 and 2020 and whether they had a child last year, said Mark Jaeger, director of tax development at TaxAct.
Take 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 you don’t file your 2020 tax returns by the time you Congress approves the next bill, the IRS would likely base its third stimulus control on its 2019 earnings.
In that case, he would probably receive less than $ 1,400 because the IRS would use his 2019 $ 90,000 earnings to determine his payment. (The exact amount will depend on the amounts set by law.) But if you file your 2020 tax return as soon as possible, the IRS will record your most recent annual income as $ 45,000, qualifying for full payment. of $ 1,400 based on the income thresholds that are now being discussed.
The same situation could happen to people who took a child into their family in 2020. If the IRS trusts their 2019 tax return, the agency will not know the new family member. As a result, the claimant would not get the proposed payment of $ 1,400 for a dependent to whom he is entitled.
There could be a disadvantage in early filing, especially for people whose incomes increased in 2020, compared to 2019, and exceeded the income threshold. If that’s the case, Jaeger said, you may want to wait until legislation is passed to file your taxes.
Get 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 salary cap for full payment of incentives.
“You’re now on that threshold of phasing out,” Jaeger said. “You better wait because the IRS will use your 2019 information” to determine your third stimulus control.
Of course, the details of the third stimulus checks are still fluid and the rules could end up differing from the two previous stimulus checks, said Eric Bronnenkant, head of taxes at financial services firm Betterment. But, he added, “it’s more likely that someone’s income will go down in 2020 and that filing it sooner would help them make more money.”
Do you want to make adjustments later?
The IRS may be able to 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 relief bill is approved, this could allow taxpayers to claim additional funds in the summer, instead of waiting for next year’s tax filing.
The IRS keeps an eye on the stimulus bill that is taking shape in Congress and “creates a series of contingencies based on any new legislation,” said Ken Corbin, the new head of taxpayer experience at the IRS. in a phone conference Thursday with reporters. “We’re thinking about what this experience is for taxpayers who might be entitled to more.”
He added: “If anyone can file an accurate statement beforehand, we encourage them to file that statement as soon as possible.”
Stimulus checks and taxes
Taxpayers who have not received full stimulus payments in the first two rounds of checks can also file their 2020 tax return quickly. By doing so, they will be able to claim the extra money from Form 1040 through what the IRS calls Recovery Bonus Credit or an adjustment between what you received from the IRS and what you should have earned, such as if the your income would decrease. or you had a child in 2020.
The IRS has issued a Recovery Bonus Credit Spreadsheet to see if you can receive additional funds. The amount can then be entered on line 30 of the IRS Form 1040. People who have received the full amounts on the first two incentive checks will not have to enter anything on the 2020 tax returns, he said. say Corbin, of the IRS.
“Anyone who meets the requirements to obtain a [stimulus check], who has not obtained any or has not obtained the full amount, can claim it in the 2020 tax return, “he noted.” The credit will be paid as part of your refund “.