One year into the pandemic, individuals everywhere are still experiencing emotional, physical, and economic implications. At Overman Capital, we've received numerous questions from folks in New Bern and the surrounding areas about the stimulus packages and how they may impact them. More importantly, we've been able to advise individuals and families on effectively using any stimulus they received, e.g., pay off debt, put toward a child's education savings, invest, etc.
To ease the pandemic's damaging effects, the federal government has recently passed a third stimulus package called the American Rescue Plan Act. Eligible individuals and families will receive stimulus checks up to $1,400 per person. Here's what you need to know about the third stimulus check.
The Rundown on Stimulus Checks:
Just as before, taxpayers who qualify will receive a direct deposit of up to $1,400, and couples will receive $2,800. Also, families will receive $1,400 for each dependent (as defined in Sec. 152) for 2021, including college students and qualifying relatives who are claimed as dependents. The payment will begin to phase out for individuals with a 2019 or 2020 adjusted gross income of $75,000, couples with a $150,000 income and head of households with a $112,500 income.1
It is important to note that the initial amount paid is based on either a taxpayer's 2019 or 2020 income tax return (whichever is the latest return that the IRS has on file). Still, it will ultimately be 'trued up' if a taxpayer is owed money based on their actual 2020 income. In other words, taxpayers will be given an estimated amount based on the last income the government has on file but could end up getting even more (albeit later) if their 2020 return shows they made less money than they made in the previous year.
How Does the Phase-Out Work?
Individuals who make under $75,000 and couples who make under $150,000 are eligible for the full stimulus check.
The amount is reduced for taxpayers with higher income - for individual filers earning between $75,000 and $80,000, or $150,000 and $160,000 for couples. Meaning that individuals with an income higher than $80,000 are not eligible to receive a stimulus check, and neither are joint filers with an income over $160,000.1
Head of household filers earning between $112,500 and $120,000 will receive a reduced amount. Those earning $120,000 will not receive a stimulus check.1
Are Non-citizens Eligible?
The CARES Act did not allow families of mixed-status to receive a stimulus check. Mixed-status refers to households in which a U.S. citizen is married to a non-citizen. In the new package, both U.S. citizen and their non-citizen spouse are eligible to receive a stimulus check.2
How Will I Receive My Payment?
The IRS will use information from 2019 or 2020 tax returns to calculate your payment amount and will send the payment to the bank account listed on the return.2
What if the IRS Does Not Have My Direct Deposit Information?
The IRS has created an online portal called Get My Payment, where individuals can check their stimulus payment status and learn what information the government may still need to issue the money. According to the IRS, this portal will provide important information, including your payment status, payment type, and whether additional information (including bank account information) is required.
If I Usually Do Not File a Tax Return, How Can I Receive a Check?
Those who usually do not file a tax return, including low-income taxpayers, senior citizens, and Social Security recipients, will need to file a simple tax return (but still will not owe tax) to receive their check. The IRS has created a special page dedicated to Coronavirus and will be updating it with the subsequent steps on how to do this soon.
What Is the Difference Between a Stimulus Check and a Tax Credit?
The stimulus check is the same as a tax credit, and it is specifically an advanced refundable tax credit, meaning it is a refund allotted to you and sent in advance of the 2020 tax return.3 A refundable tax credit differs from a nonrefundable credit, which only applies to the amount of taxes you owe and is not available as a refund to you otherwise.3
Is the Stimulus Check Taxable?
Since the stimulus check is a tax credit, it is not income and therefore is not taxable.
If you received a previous stimulus check, you could likely expect to receive another stimulus check in the coming weeks. Please do not hesitate to call Rob or me if you have questions regarding a stimulus check or what to do with it.
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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.