15 Mar 2021 Recovery Rebates
President Biden signed the American Rescue Plan on March 11th. There is a lot to unpack from this $1.9T piece of legislation. One part that will have an impact on many clients in the very near future is the stimulus checks or “Recovery Rebates” as they are officially known. This is the third round of direct payments for Americans and the rules for these are different.
The American Rescue Plan provides $1,400 per taxpayer plus an additional $1400 per dependent. This can potentially increase the total payment for a family as compared to the previous two payments which only counted children under 17 and not older dependents (such as older children in college or elderly family members who are dependents).
If you qualify for a payment, to calculate how much you will receive, you simply take the number of taxpayers and dependents in your family and multiply $1,400 by the number. For example, a couple with a 13-year-old and a 19-year-old in college (claimed as a dependent) would receive $5,600. It’s important to note that these payments are not taxable income.
The American Rescue Plan phases out who is eligible for payments quicker than the CARES Act and the Consolidated Appropriations Act. For single filers, the payments will phase out completely at $80,000 in Adjusted Gross Income (AGI). Folk who are married and file jointly will completely phase out at $160,000. Anyone making below $75,000/$150,000 will receive the full amounts. This remains unchanged from the previous stimulus payments.
If your AGI falls somewhere in the middle, you will receive at least part of the payment. A simple example is if you are a married couple with no children and your AGI was $156,000, you are 60% through the phaseout range, so you will lose 60% of your Recovery Rebate. Instead of receiving $2,800, they would receive $1,120 (40% of the full amount).
The IRS will use your last income tax filing to determine your AGI. For most people that will likely be their 2019 AGI, but for some early-bird filers that could be 2020. Things can get tricky though if your income has fluctuated between 2019 and 2021 as it has for many Americans during the pandemic.
If your latest tax filing shows that you are in the phaseout range, you will receive the ratable portion, or if you are above the phase-out range you will not receive any payment. Since your latest tax filing may be from 2019, it is possible that you would qualify for a payment (or a larger payment) based on your 2020 income if it was lower. There is a solution for this issue in the law, known as the “Additional Payment Determination Date.” This will be 90 days after the tax filing deadline. If you typically file for an extension and wait until October to file your taxes, you may want to rethink that strategy this year. Folks who made more than $75,000 (for single filers) or $150,000 (Married Filing Jointly) in 2019, but made less in 2020 will want to get their 2020 taxes filed before the Additional Payment Determination Date.
Lastly, if your 2021 AGI ends up being lower than your 2019 or 2020 AGI, and it is low enough to qualify for the 2021 Recovery Rebate, it will be applied to your 2021 income tax return when you file in 2022. The Recovery Rebates are actually an advance receipt of a 2021 tax credit, so anyone in this situation would receive it as a tax credit when they file their taxes next year.