With lawmakers negotiating a new round ofMany Americans are eager to know if and when they will receive a third stimulus check. Aside from Congress’ timetable for passing the legislation, there’s another factor that could affect stimulus payments: your 2020 tax returns.
The reason comes down to the confluence of tax filing season and the expectation that Congress will pass the next exemption bill in mid-March. The IRS officially began accepting tax returns on February 12, but said the filing window will close on its usual April 15 date. The American Institute of CPAs earlier this month urged the IRS to announce by March 1 whether it plans to extend the tax. filing deadline for all taxpayers.
So far, the IRS has:for Texas residents, who have until June 15 to file their returns due to the deadly storms that have hit that state.
The current timeline basically means the agency could start handing out stimulus checks midway through the tax season, which could affect how much Americans get — especially households that lost income last year or who had a child in 2020. The reason: The IRS relies on each person’s most recent tax return to determine stimulus check payment.
If a taxpayer doesn’t file its 2020 tax return before Congress passes its next exemption bill, the agency will likely rely on its 2019 tax return to calculate its stimulus check payment — and that 2019 return may not reflect income losses during last year’s economic crisis. years or a new child, for example.
“I would recommend people file their returns as soon as possible, especially since last year 75% of taxpayers received a tax refund of nearly $3,000,” said Lisa Greene-Lewis, a tax expert at TurboTax. “We hear a lot of people say, ‘I’ve had a baby in 2020, how will the IRS know? When they released the previous stimulus payment, they didn’t know.'”
To be sure, there’s another reason to file early: to get your tax refund as soon as possible, especially if you owe some money from one or both of your previous stimulus checks. For example, people who had a baby in 2020 would be entitled to an additional $1,100 in incentive money ($500 from the first round and $600 from the second round), which they can claim on their 2020 tax returns.
Any additional money owed from the past two stimulus checks will be sent through refund checks this year, the IRS said.
Lawmakers are currently negotiating details of the next stimulus package, including whatfor the next round of audits, 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.
On February 8, however, the House Democrats pushed back on those lower income thresholds, proposing to keep the income thresholds at the same level as in the previous checks. That would ensure that the entire $1,400 benefit would go to individuals earning $75,000 or less, while couples earning $150,000 would be entitled to $2,800 in benefits. Payments would go down for incomes above those levels, gradually disappearing for singles earning $100,000 or more and couples earning $200,000 or more.
Speaking at a CNN town hall in Wisconsin on Feb. 16, Mr. Biden emphasized his determination to pass a major stimulus bill, noting that economists believe a significant investment could help the economy recover in the short and long term. . “That overwhelming consensus is that we shouldn’t be overspending to grow the economy a year, two, three and four years down the line,” Biden said. “This is the time we should be spending. This is the time to get big.”
Lawmakers could move forward with the bill in the coming weeks and send it to Mr Biden for his signature, Treasury Secretary Janet Yellen told CNBC on Feb. 18.
“President Biden has discussed the checks with Republicans and members of Congress,” she said. “He wants to make sure they’re targeted so they go to people in need. You know, not very high-income people who don’t need it.”
Why Filing Taxes ASAP Could Get You More
Taxpayers need to consider two things: their income in 2019 versus 2020 and whether they had a child last year, noted Mark Jaeger, tax development director at TaxAct.
Take a single employee who made $90,000 in 2019 but lost her job during last year’s mass layoffs and ended up making $45,000 in 2020. If she doesn’t file her 2020 tax return by the time Congress passes the next exemption bill approves, the IRS would likely base its third stimulus check on its earnings in 2019.
In that case, she would most likely receive less than $1,400 because the IRS would use her $90,000 2019 earnings to determine her payment. (The exact amount would depend on the phase-out amounts set by law.) But if she files her 2020 tax return as soon as possible, the IRS will list her most recent annual income as $45,000 — and qualify her for the full payment of $ 1,400 based on the income limits now under discussion.
The same situation may arise for people who welcomed a child into their family in 2020. If the IRS relies on their 2019 tax return, the agency is unaware of the new family member. As a result, the plaintiff would not get the proposed payment of $1,400 for a person to which he is entitled.
There can be a downside to filing early, especially for people whose incomes have increased in 2020 from 2019 and have 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 over the salary cap for the full stimulus payment.
“You are now on the brink of phasing out,” Jaeger said. “You’d better wait because the IRS will use your 2019 info” to determine your third stimulus check.
Sure, the details of the third stimulus checks are still fluid, and the rules could be different from the two previous stimulus checks, noted Eric Bronnenkant, head of taxes at financial services firm Betterment. But, he added, “It’s more likely that someone’s income has fallen in 2020 and that applying earlier would help them qualify for more money.”
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 exemption account is approved, taxpayers can claim the extra money in the summer — instead of waiting until next year’s tax return.
The IRS is watching the stimulus bill taking shape in Congress and “building up some contingencies based on new legislation,” Ken Corbin, the new Chief Taxation Experience Officer at the IRS, said in a Feb. 11 conference call. with reporters. . “We’re thinking about what that experience is like for taxpayers who might be entitled to more.”
He added: “If anyone can file an accurate return sooner, we encourage them to file that return as soon as possible.”
Incentive Checks and Taxes
Taxpayers who haven’t received their full incentive payments in the first two rounds of checking may also want to quickly file their 2020 tax returns. By doing so, 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 versus what you should have received, such as if your income has fallen or you had a child in 2020.
On Feb. 10, the IRS said it has issued all first and second incentive payments it is “legally permitted to issue.” During the Feb. 11 conference call with reporters, IRS officials said they had made more than 140 million payments for the second stimulus check, compared with 160 million for the first stimulus check.
The second incentive check had a lower income reduction, which may mean fewer households were eligible for a cheque. But there may be instances where people didn’t receive the check, such as if the IRS didn’t have an active direct deposit bank account or current address for the recipient. In that case, the IRS says people can claim the second stimulus check on their 2020 tax returns.
The IRS has published a recovery discount credit worksheet to see if you could receive additional money. The amount can then be entered on line 30 on IRS Form 1040. People who received the full amounts under the first two stimulus checks need not enter anything on their 2020 tax returns, said Corbin of the IRS.
The IRS is urging people to file electronic returns this year and select direct deposit to ensure the fastest delivery of their returns. Consumers may also want to avoid anticipation loans from tax preparers like H&R Block.
While these anticipation loans for repayment can provide faster access to repayments, the IRS had trouble with the previous two stimulus checks to send the money to those RAL accounts, which are temporary accounts set up by intermediaries. In other words, relying on those accounts can delay the delivery of a third stimulus check.
Paper returns take longer to process because IRS employees have to open the forms and enter the information into its systems, Corbin said. The IRS is still processing 6.7 million individual returns from last tax season, he added.
“Anyone who qualifies for a [stimulus check]Those who did not receive one or did not receive the full amount can claim it on their 2020 tax return. “The credit will be paid as part of your refund.”