03/20/2021
If you are on the bubble of receiving stimulus payments, the timing of filing the 2020 return is important.
Recovery Rebate
The Recovery Rebate is the term used for the individual stimulus that the IRS is sending out now. This is the 3rd stimulus payment sent directly to taxpayers from the IRS. The amount of the payment is $1,400 per person, including dependents.
If Bob and Alice have 7 children and Bob’s Mother living with them as dependents, they have 10 eligible people and will get (10 X $1,400) $14,000. Dependents are not limited to those under age 17- any dependent will qualify.
However, the payments are phased out within narrow ranges:
· Single filers $75,000- $80,000
· Head of Household $112,500-$120,000
· Married filing a Joint Return $150,000-$160,000.
It’s a very narrow phaseout, meaning that if a single taxpayer has income of $80,001, that person would get NO recovery rebate. If your Adjusted Gross Income (AGI) is below the phase-out threshold for 2019, 2020 & 2021, you will get all of the stimulus payments- end of story. If above the phase-out range for those periods, you will get no stimulus payments.
Here is where it gets complicated:
Your Adjusted Gross Income (AGI) will be reviewed from either your 2019 filed tax return or your 2020 filed tax return. Congress came up with a new date for this rule called the “Additional Payment Determination Date.” It is defined as the earlier of: 90 days after the 2020 filing due date or September 1, 2021. The IRS just changed the filing due date from April 15, to May 17, and 90 days after that is August 15, 2021. And this is before the September 1, 2021 date, meaning that the Additional Payment Determination Date is August 15, 2021.
IF YOUR INCOME IS LOWER IN 2020 THAN IN 2019, YOU NEED TO FILE YOUR RETURN BY AUGUST 15, 2021 REGARDLESS OF WHETHER WE FILE AN EXTENSION TO MOVE YOUR DUE DATE TO OCTOBER 15TH.
This only matters if your income is above the phaseout range in 1 year and below the phaseout range in the other year. If you are below the phase-out range or above the phase-out range in both years, it does not matter.
Example: Joe & Joan had adjusted gross income of $170,000 in 2019 and $140,000 in 2020. Based on their 2019 income they are phased out of the recovery rebate of $1,400 per person. If they file their 2020 before August 15, 2021, the IRS will use their 2020 income and they will receive the full $1,400 per person rebate.
IF YOUR 2019 INCOME IS LOWER THAN YOUR 2020 INCOME, YOU NEED TO EXTEND YOUR RETURN UNTIL OCTOBER 15, 2021, AND FILE YOUR RETURN AFTER AUGUST 15, 2021, AND BEFORE OCTOBER 15, 2021.
Example: Joe & Joan had adjusted gross income of $140,000 in 2019 and $170,000 in 2020. Based on their 2020 income they are phased out of the recovery rebate of $1,400 per person. If they file their 2020 return after August 15, 2021 (and before October 15, 2021), the IRS will use their 2019 income and they will receive the full $1,400 per person rebate.
There is a 3rd bite of the apple if your 2021 AGI is below the upper phase-out range and you were phased out in 2021 based on 2019 or 2020 AGI. The Rebate Recovery just passed is a 2021 credit and can be applied to reduce your 2021 taxes and provide a rebate. In other words, you can use 2021 AGI to qualify for the last stimulus payment.
If the IRS already paid you the stimulus money in 2020 and 2021, there is no clawback, if you subsequently fail the phase-outs.
And it gets even stranger…
Example: Sam and Sarah are divorced and share custody of George. Under their agreement, Sarah claims George as a dependent in odd years and Sam claims in even years. Sarah earns $65,000 in 2019 and $80,001 in 2020; and George earns $85,000 in 2019 and $70,000 in 2020. If Sarah files her 2020 return after August 15, 2021, and Sam files his 2020 return before August 15, 2021, they BOTH get the stimulus credit for George.
