What tax year is the third stimulus check based on?
The third round of stimulus checks are based on your most recent tax filing with the IRS but are an advanced payment on a refundable tax credit for 2021.
Just days after the American Rescue Plan was signed $1,400 direct stimulus payments began to be sent out to eligible recipients. Many Americans are already seeing those payments appearing in their bank accounts, letting families still struggling a year into the economic crisis brought on by the covid-19 pandemic breathe a sigh off relief.
The Internal Revenue Service (IRS) based eligibility on the information the agency had on file when the payments were made, which could be from your tax filing in 2019 or 2020. However, if you are not eligible for a payment but your income is affected for the worse in 2021, you may be able to claim what is due to you through the Recovery Rebate Credit when you file in 2022.
Why didn’t I receive a third stimulus check?
You may have received an Economic Impact Payment (EIP), better known as a stimulus check, in the first and second round but found that you were passed over in this latest round. Before the Senate took up the legislation that authorized the $1,400 payments, the eligibility limits were tightened. Depending on which year the IRS uses to judge your eligibility, which could be 2019 or 2020, may affect whether you see any direct stimulus money.
In order to see a full payment, taxpayers' adjusted gross income (AGI) must be at or under $75,000 for individuals of, $150,000 for those married and filing jointly and $112,500 for heads of household, with payments phasing out faster than in the previous two rounds above those amounts. Incomes of $80,000, $160,000 and $120,000, respectively, and above will not receive any stimulus money.
You might be eligible for a stimulus check in 2022
However, with the pandemic still disrupting the US economy, if your financial situation worsens in 2021 and brings you below the eligibility limits for either a full or partial payment, you will be able to claim the amount on your 2021 tax return that you will file in 2022. This will work much like it did for the previous two direct stimulus payments, where taxpayers can claim the missing amount through the Recovery Rebate Credit on their 1040 tax filing for 2020 in this year.
Furthermore, if you are eligible for a payment based on your 2021 tax return and have a baby in 2021, you will be able to collect up to $1,400 for your new dependent as well.
Talk to a tax expert to help get a stimulus check
If you find that in 2021 your AGI is just over the limit to receive a payment or less than the full amount, you may want to look into ways of lowering your taxable income when you file in 2022. The IRS suggests several ways that you can reduce your AGI. Not only could it help lower your tax rate, but could also help you get that extra stimulus money you might otherwise miss out on. It could also help you to plan ahead for the future to secure your retirement fund
- Contribute to a Health Savings Account
- Claim educator expenses if they’re a qualifying educator
- Pay student loan interest
- Contributing money to a retirement plan at work like a 401(k) plan can reduce a taxpayer’s AGI.
- Investing in a traditional IRA plan is another way to save for retirement and lower AGI.
- Self-employed SEP, SIMPLE, and qualified plans are also retirement options that can lower AGI.
The IRS has several digital tools taxpayers can use to stay updated on important tax information that may help with tax planning. In addition to visiting IRS.gov, taxpayers can download the IRS2Go mobile app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.