Will I receive a stimulus check?

By the time this article is published, many families will have started receiving their recovery rebates (a.k.a. “stimulus checks”) from the U.S. government. The American Rescue Plan Act, which was approved in mid-March, provides prepaid tax rebates in the form of stimulus checks, allows larger child tax credits, allocates additional money to schools and vaccination programs, extends unemployment benefits, expands paycheck protection program coverages, and does several other things. For the purposes of this blog, we are going to focus exclusively on the stimulus checks and how the eligibility rules have changed from the previous checks issued in 2020.

Change #1: More people are eligible for inclusion in the payment computation

Previously, the amount of the stimulus payment was based on the number of taxpayers in the household, plus any children in the household for which a child tax credit could be claimed. Now, the total payment made to a household will be $1,400 per person multiplied by the number of dependents claimed for that household on their tax return. This change in operative language from “children” to “dependents” means that children ages 17-19 (or 17-24, if the child is in college) are now factored into the total payment amount. Previously, they were left out. In addition, other people in the home who qualify as dependents, such as aging parents, are also figured into the computation.

Let’s look at an example:

Marcia and Clark are married and file jointly. They have two children, ages 15 and 19. Marcia’s mother, whom they claim as a dependent for tax purposes, also lives with them. For prior stimulus checks, the government only considered them as having three qualifying people in their household; Marcia, Clark, and their 15 year old child for whom they claimed a child tax credit. However, under the new program, the amount of their check would be $1,400 x 5 = $7,000. They are considered to have five people in their household, because in addition to Marcia and Clark, each of the two children and Marcia’s mother all qualify as dependents.

Change #2: Different phaseout ranges

While the rules for who qualifies to be counted within the household are more generous, this part is less so. The income thresholds that determine what households are eligible to receive checks have come down quite a bit. While they are still based on Adjusted Gross Income (AGI), the dollar amounts are significantly less, and are uniform across households who use the same filing status regardless of how many qualifying dependents people are in the household. The new phaseout ranges are:

Single: $75,000 – $80,000

Married Filing Jointly: $150,000 – $160,000

Head of Household: $112,000 – $120,000

So, given our previous example with Marcia and Clark, if they have an AGI of below $150,000, they will receive their entire $7,000 check. If their AGI is above $160,000 they will receive nothing. If their AGI falls between $150,000 and $160,000, they will receive a proportionate amount of the check based upon how far they encroach on phaseout range. For example, if their AGI is $152,000, they are 20% into the phaseout range, so they will lose 20% of their $7,000 payment and receive only $5,600.

If a household filed a tax return for 2019 or 2020 wherein their AGI was below the lower bound of the phaseout range for their filing status, that household can expect a check for the full amount. However, for people who have a most recent AGI on file with the IRS that is within or above the phaseout range, there are still additional chances for them to qualify for a larger stimulus payment.

Second Chance

For taxpayers who have not yet filed their 2020 return and their 2019 AGI was within or above the phaseout range, the IRS will give them another chance to qualify for a larger payment. Once their 2020 return is filed, if the AGI documented for 2020 is more favorable than the 2019 AGI, that figure will be used for a new payment computation. So, if a taxpayer’s 2019 AGI was above or near the top of the phaseout range but 2020 AGI was lower, a check for the difference in computed payments will be issued. AGIs for the year 2020 will be assessed no later than September 1, 2021.

Let’s go back to Marcia and Clark. Let’s say their 2019 AGI was $152,000, so they only received a check for $5,600. However, their AGI for 2020 is $135,000, which is below the phaseout range. Marcia and Clark can expect an additional payment for $1,400, which is the difference between $7,000, their full amount based on qualifying members of their household, and $5,600, the amount they received as a result of their 2019 AGI falling within the phaseout range.

The Final Chance

For taxpayers who have 2019 and 2020 AGIs that are within or above the phaseout range, it is important to note that the IRS will take a third look at their AGI again when the 2021 return is filed. If AGI is more favorable for 2021, their payment will be recalculated, and they will be paid any additional amount due.

No Clawback Provision

It is important to note that, as of the time of this writing, there is no clawback provision included in the legislation. That means if a taxpayer’s AGI increases in either 2020 or 2021, previously paid amounts based on prior years’ lower AGI will not be reclaimed by the IRS.

Where is my stimulus payment?

If you qualify for a stimulus check based on the information provided, the IRS has provided a tool to track the payment which can be found here: https://sa.www4.irs.gov/irfof-wmsp/login

Conclusion

Other than the stimulus checks, there are several other aspects of the American Rescue Plan which can aid families.  One of those items is the increased child tax credit, which we will discuss next time. In the meantime, if you have questions about how fluctuations in your AGI will affect your stimulus check, let’s talk!