Tax Tip Tuesday – 1/5/2021

A New Round of Stimulus Checks

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which included measures for both COVID-19 relief and sweeping funding provisions for the government through September 2021. While there are many sections of this law to explore, this article will focus on the stimulus checks.

Qualifying individuals will receive these economic impact payments, and the Washington Post reports that more than 85 percent of US households will receive a check.

To qualify:

• For individuals making up to $75,000 per year, or if a couple, making up to $150,000 per year, the check will be $600.
• For individuals making between $75,000 and $86,900 (couples: $150,000 to $173,900), the check will be between $595 and $5.  In this phaseout, the amount of the check decreases by $5 for every $100 of income above $75,000/$150,000, phasing out completely at $87,000/$174,000.
• The amount sent will be based on the amount you earned (adjusted grow income, to be exact) on your 2019 tax return.
• Includes children. The definition for child will be the same as the one used to calculate the child tax credit.
• Excludes dependent adults over 17 at the end of the tax year.
• Excludes persons who died on or before January 1, 2020.
• Includes individuals who file jointly with an ITIN, but excludes the person with the ITIN.
• Includes 2019 non-filers who receive benefits from Social Security Administration, Railroad Retirement Board, and the Department of Veterans Affairs.

Here are some examples:

• A family of four – mom, dad, and two children under 17 – that earns a total of $100,000 per year will receive $2,400.
• A single man earning $80,000 per year that lives with his disabled father will get $350 (80,000 – 75,000 = 5,000 / 100 = 50 * $5 = $250. $600 – $250 = $350). 
• A woman with 2 small children earning $87,000 will not get anything.

Taxpayers do not have to do anything to receive their stimulus checks. Many taxpayers will receive their stimulus checks via direct deposit, if that information was included on your 2019 return.

If the IRS does not have your bank account information, you will likely get a check or a pre-paid debit card. If you’ve moved, you can update your address by completing an IRS change-of-address form (allow six weeks).

The checks are supposed to start hitting bank accounts early in January. You do not have to pay tax on this income.   

If you never got the first stimulus check, you can claim it on your 2020 tax return.  Details are here on the IRS site.  https://www.irs.gov/newsroom/recovery-rebate-credit