The third round of direct incentive payments will be eligible for taxpayers this weekend, the government said in Biden on Thursday. This is welcome financial relief for millions of households struggling with the coronavirus pandemic for another year.
While the $ 1400 payments will be based on the most recent tax return filed by the Internal Revenue Service (IRS) for each taxpayer, if you lose income in 2021 and qualify for the third incentive test for the first time – or for ‘ a bigger part of it – you will be able to claim it on your 2021 tax returns, which you will file in 2022, says Garrett Watson, a senior policy analyst at the Tax Foundation.
Eligible beneficiaries who have a baby in 2021 can also collect a dependent payment of up to $ 1400.
“This is similar to the process currently being done for the remaining credits for the two previous payments,” says Watson. Qualifying taxpayers who have not received the first or second stimulus payments, or received an incorrect amount, but lost enough income to qualify in 2020, can currently claim a Refund Credit on their 2020 Form 1040.
This means that if you earned $ 80,000 in 2019, but only $ 60,000 in 2020, you could claim the credit.
Anyone with an adjusted gross income (AGI) below $ 75,000 and married couples earning below $ 150,000 receive the full payment of $ 1400 or $ 2800, respectively. After these limits, there is a very steep income phase: individuals earning $ 80,000 or earn more, and couples earning $ 160,000 or more will not receive a third payment at all.
That small difference in AGI qualifications could encourage those above the income limit to lower their taxable income for 2021 so they can get a check, too. This can be done by, among other things, contributing to a traditional 401 (k) or IRA, which lowers the taxpayers’ AGI.
If an individual earning $ 80,000 contributes $ 5,000 to a traditional IRA or 401 (k), they would lower their taxable income enough to reach the $ 75,000 limit for full stimulus payment, Watson says. They will then be eligible for a payment of $ 1400 when they file their taxes in 2022.
Couples near the income limit with dependents have even more money at stake. A couple with three children who earned $ 161,000 in 2020 will currently receive $ 0. But if the couple lost enough hours at work or contributed enough to a 401 (k) to reduce their AGI to $ 149,000 in 2021, they would receive $ 7,000 in retrospective stimulus payments next tax season, as well as a larger child tax credit.
It is possible that the IRS will try to reimburse those who lose income later this year so that they do not have to wait until the next tax season to collect the benefit. But Watson says this is unlikely, and the IRS has not yet provided details on this process.
“The IRS has hesitated in previous rounds to do this, as it can cause more problems than it solves,” such as incorrect payment amounts, Watson says. It said: “the executive order of the president asking the treasury to find ways to get payments to people who have not received it could encourage them to reconsider.”
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