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The American Rescue Plan, Right in the Nick of Time

It’s official! Congress has approved a third round of stimulus checks! Known as the American Rescue Plan, this is a third and much-anticipated economic impact payment (EIP). The EIP is one of several government measures created to assist financially stressed citizens. The following information comes from TaxBuzz.com, a free directory service that connects consumers with qualified local and tax accounting professionals. According to TaxBuzz.com, this third round of EIP’s includes:

• $1,400 ($2,800 for joint filers)
• $1,400 per dependent –unlike the prior payments, the payment will apply to all tax payer’s dependents regardless of age

Because the payments are meant for lower-income tax payers, they will phase out for higher-income tax payers with adjusted gross incomes (AGI) between:

• $150,00 & $160,000 for married tax payers filing jointly
• $112,500 & $120,000 for head-of-household filers
• $75,000 & $150,000 for all filers

The Treasury will make these payments automatically based on a taxpayer’s filing status, AGI, and claimed dependents on their 2019 return — or the 2020 return if it has been filed and processed by the IRS by the time the IRS generates the payments.

Example: Don and Shirley file jointly, have one dependent, and their 2019 AGI is $152,500 (they had not filed their 2020 return by the time the third round of EIPs were determined). Because their AGI is a quarter of the way through the phaseout range for joint filers, their EIP3 will be reduced by 25%.

Here is the computation for their EIP3:

Had Don and Shirley had an AGI of less than $150,000, their EIP would have been $4,200. Had Don and Shirley had an AGI of $160,000 or more, their EIP would have been $0.

Reconciliation – When taxpayers file their 2021 tax returns, they will need to reconcile the payments they received with the amounts they were entitled to based upon the 2021 tax return filing status, AGI, and claimed dependents. If payments were less than what they were entitled to, the difference becomes a refundable tax credit on the 2021 tax return. Taxpayers who received more than they were entitled to are not required to repay any difference.

Example (continued) – Don and Shirley’s actual 2021 AGI ends up being $148,000, so none of the recovery rebate credit (RRC) has to be phased out because the AGI is less than $150,000. Therefore, they’ll be allowed $1,050 (the difference between $4,200 and the EIP3 they received of $3,150) as a refundable credit on their 2021 tax return.
Dependents – Dependents who file their own returns are not eligible for an EIP or the RRC.

Decedents – Individuals who died prior to January 1, 2021 will not be eligible for the EIP3 or RRC.

Social Security Number – A Social Security number is required for eligibility for filers and their dependents. An exception to the SSN requirement is if a dependent is adopted or placed for adoption and has an ATIN (Adoption taxpayer identification number). The SSN has to have been issued by the Social Security Administration before the due date for filing the 2021 return.

Regulations – The Act specifies that the Treasury Secretary is to issue regulations or other guidance to ensure, to the maximum extent administratively practicable, that in determining the amount of the RRC, an individual is not taken into account more than once. This includes claims by different taxpayers and a change in joint return status or dependent status between the taxable year for which an advance refund amount is determined and the taxable year for which the RRC is determined.

Non-filers – An individual does not have to file a tax return to be eligible for the EIP. The Treasury has developed methods for directing payments to non-filers, such as Social Security recipients who don’t have other income. If you are a non-filer who received the two prior EIPs, you should automatically receive this third one. Although it may take a bit of time for the IRS to update their website to incorporate the recent changes, they provide a Non-Filer Tool.

Following Up – You will be able to check on the status of your rebate using the “Get My Payment” feature on the IRS webpage.

Also, realize there may have been births, deaths, changes in dependents, marriages, separations, divorces, and income changes that can cause the rebate amounts to be different from expected or, in some cases, incorrect.

The IRS provides an extensive Q&A related to rebate issues and situations that may answer any questions related to your rebate once the information is updated for this third round of payments.

Please do not hesitate to reach out to your tax strategists here at NextGen if you have any questions or concerns. We will consider your tax strategy and make any necessary adjustments or changes that are called for. Rest assured that we have your back during these ever-changing times and will stand in your corner with you to ensure you receive the best tax planning possible!

Credit: https://www.taxbuzz.com/blog/another-round-of-stimulus-payments-approved-by-congress