The third round of direct stimulus payments will be disbursed to eligible taxpayers this weekend, the Biden administration said Thursday. This will be a welcome financial aid to millions of households who are still struggling with the coronavirus pandemic for a year.
While the $ 1,400 payments are based on the most recent tax return filed by the Internal Revenue Service (IRS) for each taxpayer, if you lose income in 2021 and qualify for the third stimulus check for the first time – or for a larger one Some of it – you can claim it on your 2021 tax return, which you’ll file in 2022, says Garrett Watson, a senior policy analyst at the Tax Foundation.
Eligible recipients who have a baby in 2021 can also collect a dependent payment of up to $ 1,400.
“This is similar to the process now underway for remaining credits claimed for the two previous payments,” said Watson. Eligible taxpayers who did not receive the first or second incentive payments, or received an incorrect amount, but lost sufficient income in 2020 to qualify, can currently claim a chargeback discount on their 2020 Form 1040.
That means if you made $ 80,000 in 2019, but only $ 60,000 in 2020, you could claim the credit.
Anyone with an adjusted gross income (AGI) less than $ 75,000 and married couples earning less than $ 150,000 will receive full payment of $ 1,400 or $ 2,800, respectively. After those limits, there are very steep income phases: individuals who earn $ 80,000 or more, and couples who earn $ 160,000 or more don’t get a third payment at all.
That slight difference in AGI eligibility could incentivize those right above the income threshold to cut their taxable income by 2021 so they too can get a check. This can be done by contributing to a traditional 401 (k) or IRA, among other strategies, that lower a taxpayer’s AGI.
If a person making $ 80,000 contributed $ 5,000 to a traditional IRA or 401 (k), they would lower their taxable income enough to hit the $ 75,000 AGI limit for the full incentive payment, Watson says. They would then be eligible for a payment of $ 1,400 when they file their tax returns in 2022.
Couples with neighboring income limits have even more money at stake. A couple with three children who made $ 161,000 in 2020 would now receive $ 0. But if the couple lost enough hours at work or contributed enough to a 401 (k) to bring their AGI down to $ 149,000 by 2021, they would receive $ 7,000 in retroactive stimulus next tax season, as well as a larger child discount.
It’s possible the IRS could try to top up payments for those who lose income later this year so they don’t have to wait until the next tax season to collect the benefit. But Watson says this is unlikely, and the IRS has not yet provided details on this process.
“The IRS has been hesitant to do that in previous rounds because it can cause more problems than it solves,” such as incorrect payment amounts, Watson said. That said, “the executive order from the president asking Treasury to find ways to get payments to people who didn’t get them could prompt them to reconsider.”
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