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Filing your tax return now may cost you the 3rd stimulus check
Sounds crazy right? Read on to make sure you don’t fall into this tax trap.
President Joe Biden’s American Rescue Plan Act of 2021 was passed into law on March 11, 2021. Within it, is another round of economic impact payments or “stimulus checks” as they are more often referred to as. The amounts of these 3rd stimulus checks are as follows:
- $1400 for the taxpayer, and
- $1400 for their spouse if married, and
- $1400 for each of their qualifying dependents claimed on their tax return.
Unlike the first two stimulus payments, the third stimulus payment is not restricted to children under 17. Eligible families will get a payment based on all of their qualifying dependents claimed on their return, including older relatives like college students, adults with disabilities, parents, and grandparents.
A taxpayer will qualify for the full amount if they have an adjusted gross income of up to $75,000 for a single person and married persons filing a separate return, up to $112,500 for heads of household, and up to $150,000 for married couples filing joint returns and surviving spouses. Payments are reduced for filers with incomes above these levels.
If you haven’t filed your 2020 income tax return yet, your eligibility will be determined by your adjusted gross income reported on your 2019 income tax return. If you file your 2020 income tax return, the adjusted gross income on that return may be used.
So what’s the catch?
The catch is if your 2020 adjusted gross income is above the thresholds listed above and you have filed or file a 2020 tax return before the payment is issued the IRS will use the 2020 figure to determine your eligibility for the stimulus payment and determine you as ineligible for the third stimulus payment. But if you wait to file the IRS will use your 2019 adjusted gross income to determine eligibility and will issue you a stimulus payment which you won’t have to pay back. Here’s an example:
A married couple with 2 children has a 2019 adjusted gross income of $145,000. In 2020, they earned a bit more and have an adjusted gross income of $160,000. If they hold off filing their 2020 income tax return they will receive a third stimulus check of $5,600. If they file now, they will receive nothing.
Worth paying attention to, isn’t it? For reference adjusted gross income is line 11 of your 2020 personal tax return it is not the same as total income or taxable income, so please be sure to look at the right figure when determining whether you should file now or wait.
The other side of the equation:
If you were ineligible to receive the 1st or 2nd stimulus payment due to your 2019 adjusted gross income being over the eligibility threshold, but your 2020 income is less, it behooves you to file a 2020 return immediately. Since the IRS is processing these payments over the next few weeks getting your return filed now, might just net you a check in the mail, rather than having to wait to claim it on your 2021 tax return.
In addition you will now qualify for the 1st and 2nd stimulus payments and can claim them on line 30 of your 1040. A win win situation!
The IRS has a link here where you can look up the status of your third stimulus payment.
I’m hoping this post may prevent some costly filing mistakes. Please feel free to share using the share buttons and “like” the post if you found it useful. Please subscribe to receive notification of future posts. Have questions? Please leave a comment or contact me via the contact page.