Congress confirmed the 3rd phase of direct stimulus payments in less than one year, which means that many Americans should expect one more cash payout in the upcoming weeks. Once the President approves the measure in law, the IRS will begin transferring over $410 billion to low- and medium-income families. This will be the largest amount of direct payouts made to the population during the pandemic. Democrats say these $1,400 payments, combined with the $600 payouts that were confirmed in December, fulfill a commitment made in late 2020 to pay $2,000 checks to American families. These payments are expected to help families cover their expenses while many people are waiting to be vaccinated and smoothly return to their normal lifestyles.
Who is eligible to receive checks, and for what amount?
People with incomes under $75,000 or couples who earn up to $150,000, including their underage or adult dependents, are entitled to the full amount of $1,400 per person. Single parents who have at least one dependent person and earn up to $112,500 are also entitled to the full amount. Families with a few members with different citizenship and immigration classifications can also get the payout if at least one of them has a Social Security number. Benefits are shortened compared to previous phases: individuals with an income above $80,000 or couples with an income of more than $160,000 are ineligible for those allowances.
The IRS website provides information on free filing tools.
How will the IRS estimate my income?
In this case, it will consider the latest adjusted gross income. Therefore, if you have already submitted a tax return with your income for 2020, that’s most likely what will be considered. In case you haven’t yet submitted your taxes this year, the IRS will take into account your 2019 income. However, practically speaking the payment is based on income earned in 2021, the amount of which is not yet known. If your current year’s income is lower than past years, you’ll be eligible to claim the missing payment on the tax return you submit next year. Fortunately, if more income is received this year and you can only be eligible for less or no payments, you won’t have to repay the money.
Do I have to wait for the 2020 tax return to be filed?
If you qualify for a larger stimulus check based on your 2019 income compared to your 2020 income, you can wait to file your tax return. Just make sure you submit all required documents and all taxes by April 15 to avoid penalties and fees. There are also legal ways to reduce your adjusted gross income if your income is likely will be just a little above the qualifying thresholds. Contributing more to a tax-advantaged retirement or health savings account or deferring income, for example expecting to sell an interest in a business or a certain block of stock, will reduce your income to the level needed to qualify for a payout.
What is the timing and method of issuing the payment?
The Internal Revenue Service has not yet released a timetable for making the payments. However, the assumption is that payments are expected to be made within several days of the President’s approval of the law. During the previous two phases, the agency first sent direct deposit payments to those for whom bank account information was on file, and later mailed paper checks or pre-issued debit cards to all the rest. In the first phase, in March 2020, it took the IRS about two weeks to process the payments. And in the second phase, in December, it took only a few days from the time the law was signed until the payments were made.
What if I’m still waiting for my first or second phase payment?
The Internal Revenue Service put an additional line 30 “Recovery rebate credit” on individual tax return Form 1040 this year to claim refunds for missing payments. If you did not receive some or all of these payments, you have the right to claim the additional amount and it will be added to your tax refund.