Article Highlights:
- Economic Impact Payments
- High-Income Taxpayer Phaseout
- Reconciliation
- Dependents
- Decedents
- Social Security Number Requirements
- Non-Filers
- IRS Information Sites
The American Rescue Plan Act has passed and includes a third much-anticipated economic impact payment (EIP). This is one of several government measures intended to help financially stressed citizens. This will be the third round of EIPs since the pandemic began disrupting the economy at the beginning of 2020, leaving many Americans without jobs or any way to support their families.
This round of EIPs will be:
- $1,400 ($2,800 for joint filers), plus
- $1,400 per dependent—unlike the prior payments, the payment will apply to all of a taxpayer’s dependents regardless of age.
Since the payments are meant for lower-income taxpayers, they will phase out for higher-income taxpayers. Thus, the payment amounts will phase out for taxpayers with adjusted gross incomes (AGI) between:
- $150,000 and $160,000 for married taxpayers filing jointly;
- $112,500 and $120,000 for head-of-household filers; and
- $75,000 and $80,000 for all other filers.
The Treasury will make these payments automatically based on a taxpayer’s filing status, AGI, and claimed dependents on their 2019 return—or the 2020 return if it has been filed and processed by the IRS by the time the IRS generates the payments.
Example: Don and Shirley file jointly, have one dependent, and their 2019 AGI is $152,500 (they had not filed their 2020 return by the time the third round of EIPs were determined). Because their AGI is a quarter of the way through the phaseout range for joint filers, their EIP3 will be reduced by 25%. Here is the computation for their EIP3:
EIP for Don & Shirley: 2,800
EIP for their dependent 1,400
Total before phaseout 4,200
Phaseout (25%) <1,050>
Economic impact payment 3,150
Had Don and Shirley had an AGI of less than $150,000, their EIP would have been $4,200.
Had Don and Shirley had an AGI of $160,000 or more, their EIP would have been $0.
It is anticipated that the Treasury will begin issuing the EIP3s within a week after President Biden signs the American Rescue Plan Act into law.
Reconciliation – When taxpayers file their 2021 tax returns, they will need to reconcile the payments they received with the amounts they were entitled to based upon the 2021 tax return filing status, AGI and claimed dependents. If payments were less than what they were entitled to, the difference becomes a refundable tax credit on the 2021 tax return. Taxpayers who received more than they were entitled to are not required to repay any difference.
Example (continued) – Don and Shirley’s actual 2021 AGI ends up being $148,000, so none of the recovery rebate credit (RRC) has to be phased out because the AGI is less than $150,000. Therefore, they’ll be allowed $1,050 (the difference between $4,200 and the EIP3 they received of $3,150) as a refundable credit on their 2021 tax return.
Dependents – Dependents who file their own returns are not eligible for an EIP or the RRC.
Decedents – Individuals who died prior to January 1, 2021 will not be eligible for the EIP3 or RRC.
Social Security Number – A Social Security number is required for eligibility for filers and their dependents. An exception to the SSN requirement is if a dependent is adopted or placed for adoption and has an ATIN (adoption taxpayer identification number). The SSN has to have been issued by the Social Security Administration on or before the due date for filing the 2021 return.
Regulations – The Act specifies that the Treasury Secretary is to issue regulations or other guidance to ensure, to the maximum extent administratively practicable, that in determining the amount of the RRC, an individual is not taken into account more than once. This includes claims by different taxpayers and by reason of a change in joint return status or dependent status between the taxable year for which an advance refund amount is determined and the taxable year for which the RRC is determined.
Non-filers – An individual does not have to file a tax return to be eligible for the EIP. The Treasury has developed methods for directing payments to non-filers, such as Social Security recipients who don’t have other income. If you are a non-filer who received the two prior EIPs, you should automatically receive this third one. Although it may take a bit of time for the IRS to update their website to incorporate the recent changes, they provide a Non-Filer Tool on their website.
Following Up – You will be able to check on the status of your rebate using the “Get My Payment” feature on the IRS webpage.
Also, realize there may have been births, deaths, changes in dependents, marriages, separations, divorces, and income changes that can cause the rebate amounts to be different from expected or, in some cases, incorrect.
The IRS provides an extensive Q&A related to rebate issues and situations that may answer any questions related to your rebate once the information is updated for this third round of payments.
If you have any other questions, please give this office a call.
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