By Alex P. Vidal
“The only thing that hurts more than paying an income tax is not having to pay an income tax.” — Thomas Dewar
TO ensure that we qualify for President Joseph Biden’s $1,400 direct payment stimulus check, we have been advised to file our tax returns earlier, or this month until March.
This developed as many Americans were reportedly eager to learn if and when they would receive a third stimulus check, with legislators reportedly negotiating another round of coronavirus relief aid.
There’s another factor that could influence stimulus payments: our 2020 tax returns—aside from Congress’ time frame for passing the legislation.
We’ve been told to file our tax returns for 2020 before April 15 and the reason boils down to the confluence of tax-filing season and the expectation that Congress will pass the next relief bill by mid-March.
In my case, I have been filing my tax returns at TurboTax.
Like many Filipinos who live in the United States, I might not wait until April 15, although my income was affected drastically by the coronavirus disease 2019 (Covid-19) pandemic beginning the first quarter of 2020.
The Internal Revenue Service (IRS) has started accepting tax returns on February 12, with the filing window closing on its customary date of April 15.
How much we could get in the stimulus package will be affected now that the effectivity means the agency may start distributing stimulus checks in the middle of tax season.
Households that lost income last year or who had a child in 2020 are expected to be affected as the IRS relies on each individual’s most recent tax filing to determine their stimulus check payment.
If we don’t file our 2020 tax returns before Congress passes its next relief bill, the agency reportedly will likely rely on our 2019 tax return to calculate our stimulus check payment—and that 2019 return might not reflect income losses during last year’s economic crisis or a new child, for example.
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“I would suggest that people file as soon as possible, especially with 75% of taxpayers last year receiving a tax refund close to $3,000,” said Lisa Greene-Lewis, a tax expert at TurboTax.
“We are hearing a lot of people say, ‘I had a baby in 2020, how will the IRS know this? When they issued the previous stimulus payment they didn’t know that.'”
Lawmakers are currently negotiating details of the next stimulus package, including what income thresholds should apply for the next round of checks, called Economic Impact Payments.
Democrats could lower the annual income thresholds to qualify for a payment to $50,000 or less for single people and $100,000 or less for married couples, under one plan, according to the Washington Post.
House Democrats pushed back on those lower income limits, proposing to keep the income thresholds at the same level as for the previous checks on February 8.
That would reportedly ensure the full $1,400 relief payments would go to individuals making $75,000 or less, while couples earning $150,000 would be entitled to $2,800 relief payments.
The payments would reportedly ratchet down for incomes above those levels, phasing out entirely for single people earning $100,000 or more and couples earning $200,000 or more.
We taxpayers should consider two issues: our income in 2019 versus 2020 and whether we had a child last year, noted Mark Jaeger, director of tax development at TaxAct.
Take a single worker who earned $90,000 in 2019 but who lost her job during last year’s massive layoffs and ended up earning $45,000 in 2020.
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If she doesn’t file her 2020 tax returns by the time Congress passes the next relief bill, the IRS would reportedly likely base her third stimulus check on her 2019 earnings.
In that case, she would most likely receive less than $1,400 because the IRS would use her 2019 earnings of $90,000 to determine her payment. (The exact amount would depend on the phase-out amounts set by the legislation.)
But if she files her 2020 tax return as soon as possible, the IRS will record her most recent annual income as $45,000– qualifying her for the full $1,400 payment based on the income thresholds now under discussion.
The same situation could occur for people who welcomed a child into their family in 2020.
If the IRS relies on their 2019 tax return, the agency won’t be aware of the new family member.
As a result, the claimant wouldn’t get the proposed $1,400 payment for a dependent to which they’re entitled.
There could be a downside to filing early, particularly for people whose income rose in 2020, compared with 2019, and exceeded the income threshold.
If that’s the case, Jaeger said, we may want to wait until after the legislation is passed to file our taxes.
Take a single taxpayer who earned $70,000 in 2019, but got a promotion and earned $90,000 in 2020–which is $40,000 above the salary limit for the full stimulus payment.
“You are now in that threshold of phasing out,” Jaeger said. “You are better waiting because the IRS will use your 2019 info” to determine your third stimulus check.
To be sure, the details of the third stimulus checks are still fluid, and the rules could end up differing from the two previous stimulus checks, noted Eric Bronnenkant, head of tax at financial services firm Betterment.
But, he added, “It’s more likely that someone’s income went down in 2020 and that filing sooner would then help them qualify for more money.”
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It’s possible the IRS could create a way to reconcile stimulus payments later this year, Jaeger said.
For instance, if your income fell in 2020 but you don’t file your taxes before the next relief bill is passed, that could allow taxpayers to claim the additional funds in the summer—rather than waiting until next year’s tax filing.
The IRS is reportedly keeping an eye on the stimulus bill taking shape in Congress and “building a number of contingencies based on any new legislation,” said Ken Corbin, the new chief taxpayer experience officer at the IRS.
“We are thinking through what is that experience for taxpayers who might be entitled for more.”
He added, “If someone is able to file an accurate return sooner, then we encourage them to file that return as soon as they are able to.”
Taxpayers who didn’t receive full stimulus payments in the first two rounds of checks may also reportedly want to file their 2020 tax returns quickly.
By doing so, they’ll be able to claim the additional money on Form 1040s through what the IRS calls the Recovery Rebate Credit, or an adjustment between what you received from the IRS versus what you should have gotten—such as if your income decreased or you had a child in 2020.
The IRS has published a Recovery Rebate Credit worksheet to walk through whether you could receive extra funds. The amount can then be entered on line 30 on IRS Form 1040.
People who received the full amounts under the first two stimulus checks won’t have to enter anything on their 2020 tax returns, the IRS’ Corbin said.
“Anyone who is eligible for a [stimulus check], who didn’t get one or didn’t get full amount, may claim it on their 2020 tax returns,” he noted. “The credit will be paid as part of your refund.”
(The author, who is now based in New York City, used to be the editor of two local dailies in Iloilo)
