Will I receive another round of stimulus payments?

0
210

Contributed by Justin Smith, CPA

The House of Representatives and the Senate have passed competing versions of a third COVID-19 relief bill. It is expected that a reconciliation bill is likely to pass and be signed into law. Key tenants impacting individual taxpayers include $1,400 direct payments, expanded child tax credits with advance  payments and extension of federal unemployment benefits.

Direct Stimulus Payments

Should the new bill become law, the likelihood is that the Department of the Treasury (via the Internal Revenue Service) would distribute Economic Impact Payments of up to $1,400.00 per person (both for adults and their dependent children, currently under 17). Full payments would be made to single taxpayers with adjusted gross incomes (AGI) up to $75,000, heads of household up to $112,500, and married taxpayers up to $150,000. The current bill would phase out payments quickly, and fully eliminate them for singles taxpayers whose AGI exceeds $80,000, heads of household exceeding $120,000 and married taxpayers exceeding $160,000.

Similarly to the first two rounds, payments could be direct deposited or mailed to you. Visit www.irs.gov for the latest information.

Expanded Child Tax Credit

The current Child Tax Credit provides an annual $2,000 tax credit for dependents under 17, and $500 for dependents 17 and older. The legislation would expand the child tax credit to $3,600 for children up to 6 years old and $3,000 for children ages 6-16. Further, the bill provides that half the credit would be paid in periodic monthly installments from July – December, with the rest claimed on your tax return. The mechanics of how this would work will, no doubt, provide significant challenges to taxpayers and preparers as they prepare 2021 returns. Additionally, new income limits would apply for the additional amounts above $2,000 based on the same limitations mentioned above regarding the stimulus payments, so not all taxpayers would be fully eligible for the expanded credit.

Expanded Unemployment Benefits

The Senate’s bill also provides an additional $300 in weekly federal unemployment benefits (typically administered through the states) through Sept. 6. Further, the first $10,200 of federal benefits would be tax-free for taxpayers with less than $150,000 in AGI.

What Does It Mean For Me?

It is certainly possible, and even probable, that changes will be made to the legislation before it is finalized. That said, taxpayers who have not yet filed their 2020 tax returns should consider delaying filing if their income will exceed the phaseout limitations mentioned above, especially if their 2019 income was within the limitation. It is likely that you would then receive the economic stimulus payments, but not be responsible for repaying them (similar to the 2020 payments) should your income for 2020 exceed the limitations once you file.

I personally believe a better approach would be to waive the Social Security/Medicare tax for 2021, which would incentivize income earners while also providing a full-year positive cash flow to taxpayers. That said, pay close attention to the legislation, determine how it may impact you, and then identify possible strategies for the use of any cash payment (e.g., debt retirement, investment, savings, etc.). As always, consider consulting with your financial or tax advisor for specific details that impact your situation.

Justin Smith is a licensed certified public accountant in Opelika, specializing in individual and small business tax and accounting. He can be contacted at 334-400-9234 or Justin@JSmithCPA.net. His web site is www.jsmithcpa.net

LEAVE A REPLY

Please enter your comment!
Please enter your name here