Third stimulus check: Will the IRS tax returns affect my direct payment?

President Biden's American Rescue Plan is expected to be passed in the coming weeks. Your tax filing could decide how much you receive in the third round of stimulus check payments.

Third stimulus check: Will the IRS tax returns affect my direct payment?

Tax year 2020 began last week and you have until 15 April to make sure that your tax returns for the last year are submitted. The process is overseen by the Internal Revenue Service (IRS), the bureau of the Department of the Treasury who focus on tax affairs.

This year the IRS are also administrating the stimulus check distribution process which will see direct payments sent to over 160 million people in the coming months. The third round of stimulus checks is working its way through Congress this week and there are real hopes that the $1,400 payments could begin distribution in mid-March.

With the two systems administrated by the same body, your tax returns could have a direct impact on how much you receive in the form of stimulus checks. Here’s everything you need to know.

IRS tax returns may decide your stimulus check entitlement

Although the American Rescue Plan has now been officially proposed in the House of Representatives, the eligibility requirements for the third stimulus checks have still not been decided. Whatever the final thresholds are, the main deciding factor will be your adjusted gross income (AGI). 

The IRS define AGI as “gross income minus adjustments to income”. Your gross income is the total amount you receive in a year, including wages, dividends, capital gains, business income, retirement distributions as well as any other income streams.

If you submit your tax returns to the IRS before the next round of stimulus checks has been signed into law, the new information is what will be used to decide how much you can receive in your direct payment.

This means that anyone who has lost their job or suffered a loss of income since they last filed a tax return should do so as soon as possible, to ensure that they get their full stimulus check entitlement.

Claim missing stimulus check payments on your tax return

Because both the tax filing process and the stimulus check distribution are overseen by the same body, the IRS give you the opportunity to factor any missing payments into your tax returns.

If you have not yet received either the $1,200 or $600 stimulus checks that were sent out last year or in January 2021, you can get that money as a tax rebate. You first need to check your payment status online on the IRS web portal; if your payment status appears as an error message you may be a candidate for a payment.

The payment, which comes in the form of a Recovery Rebate Credit, will not appear as a separate check but you can either use it to reduce your tax bill or add it to a tax refund. The IRS began processing tax returns on 12 February so if this applies you can start right away.

For more information on how to apply for the Recovery Rebate Credit, check out our handy explainer: How to claim your stimulus check on 2020 tax return