23 Feb 2021 Third Stimulus Check: Should I File My Tax Return Now or Later?
Will I qualify for a third stimulus check? Should I file my tax return now or later?
We recommend you provide your information to us as soon as possible. We can help you evaluate this decision.
Lawmakers are currently negotiating another round of Coronavirus relief aid, and many taxpayers are eager to learn if and when they’ll receive a third stimulus check. Some factors could influence stimulus payments: a change in your income and a change in eligible children.
There is an expectation that Congress will pass the next relief bill by mid-March. In the past, the IRS has relied on everyone’s most recent tax filing to determine their stimulus payment.
If a taxpayer doesn’t file their 2020 tax return before Congress passes its next relief bill, the 2019 tax return will be used to calculate the stimulus payment.
Lawmakers are currently negotiating details of the next stimulus package, including the income thresholds that will apply for the next round of checks. For example, lawmakers may lower the annual income thresholds to qualify to $50,000 or less for single people and $100,000 or less for married couples.
The House version of the Bill allows stimulus checks for dependents. Instead of limiting it to children under the age of 17, this would give more money to families with college-age children and people who claim a disabled adult child or elderly parent as a dependent. This would provide for the full $1,400 relief payments going to individuals making $75,000 or less, while couples earning $150,000 will be entitled to $2,800 in relief payments. The payments would phase out for incomes above those levels, phasing out completely for single people earning $100,000 or more and couples earning $200,000 or more. The stimulus payments would be an advance of a refundable tax credit on the 2021 Form 1040.
In general, taxpayers should consider these issues:
- Income in 2019 versus 2020
- Change in the number of eligible children (previous payments were based on age 16 or younger).
For example: Take a single worker who earned $95,000 in 2019 but lost his job during last year’s layoffs and earned $47,000 in 2020. If he doesn’t file his 2020 tax return by the time Congress passes the next relief bill, the IRS would base his third stimulus check on his 2019 earnings. In that case, he would receive less than $1,400 because the IRS would use his 2019 earnings of $95,000 to determine his payment. (The exact amount would depend on the phase-out amounts set by the legislation.) But if he files his 2020 tax return as soon as possible, the IRS will record his most recent annual income as $47,000 — qualifying him for the full $1,400 payment based on the income thresholds now under discussion.
The same situation could occur for people who had a child 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 taxpayer will not 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, you may want to wait until after the legislation is passed to file your taxes.
The details of the third stimulus checks are still not finalized, and the rules could differ from the two previous stimulus payments. But, it’s more likely if someone’s income went down in 2020 that filing sooner would then help them qualify for more money.
Taxpayers who didn’t receive their full stimulus payments in the first two rounds may also want to file their 2020 tax returns quickly. Anyone eligible for a stimulus payment, who didn’t get one or didn’t get the full amount, may claim it on their 2020 tax return. The credit will be paid as part of your refund.
As you can see, there may be some planning opportunities. Please provide your information as soon as possible so we may review these options with you.