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: the 2020 tax returns.
The reason boils down to the confluence of the tax filing season and the expectation that Congress will pass the next relief 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 effectively means that the agency can start distributing stimulus checks in the middle of the fiscal season, which could affect the amount Americans get, especially households that lost income last year or that went have a child in 2020. The reason: the IRS depends on most people filing recent taxes to determine the payment of their incentive check.
If a taxpayer fails to 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 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 will filing taxes get you more soon?
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 she doesn’t file the 2020 tax returns when Congress approves the next relief law, 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 occur for people who took a child into their family in 2020. If the IRS trusts their 2019 tax return, the agency will not be aware of 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 check are still fluid and the rules could end up differing from the previous two 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 do not file your taxes before the next relief bill is approved, this could allow taxpayers to claim additional funds in the summer, rather than wait until presentation of next year’s taxes.
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. at a Feb. 11 conference call 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.
Since Feb. 10, the IRS said it issued all first and second stimulus payments that it is “legally authorized to issue.” At the Feb. 11 conference call with reporters, IRS officials said they had issued more than 140 million payments for the second stimulus control, compared to 160 million for the first stimulus control.
The second stimulus control had a phasing out of income, which means that fewer households may have qualified for a control. But there could be cases where people do not receive the check, such as the IRS not having an active bank account for direct deposit or a current address for the recipient. In this case, the IRS says people can claim the second stimulus check on their 2020 tax returns.
The IRS has released a recovery bonus 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 received the full amounts on the first two stimulus 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 the repayment. “