Coronavirus Stimulus Payment Plan Package

Real Estate

When You File Your 2019 Tax Return Will Impact Your Stimulus Payment

CoronaVirus Stimulus Package

As part of the recent $2 trillion stimulus package passed by Congress, most people will receive a check or direct deposit in the coming weeks and months. But how much will you get?  The answer, in multiple respects, is “it depends.”

First, it depends on your filing status: if you’re single, the payment is $1,200, but it doubles for a married couple filing jointly to $2,400.

It also depends on your family size; you’ll get an additional $500 for every child under the age of 17.

In addition, if you are claimed as a dependent on someone else’s tax return, you are not entitled to any payment at all.

And for high-income taxpayers, it depends on just how high your income goes; a married couple will start to lose the payment once adjusted gross income (AGI) — think, all of your income less only a few deductions — exceeds $150,000, and the same will occur for a single taxpayer once AGI exceeds $75,000.

Easy enough...but lost among the other aspects of the calculation is that your payment also depends on whether or not you have filed your 2019 tax return, and that is a factor that you may still control.

According to the new law, the IRS is going to look first to your 2019 tax return to compute the payment. If no 2019 return has been filed, however, the IRS will grab your 2018 return instead. (If you receive Social Security and don’t need to file a return, the IRS will send you a payment based on your Form 1099-SSA).

Easy enough...but lost among the other aspects of the calculation is that your payment also depends on whether or not you have filed your 2019 tax return, and that is a factor that you may still control.

According to the new law, the IRS is going to look first to your 2019 tax return to compute the payment. If no 2019 return has been filed, however, the IRS will grab your 2018 return instead. (If you receive Social Security and don’t need to file a return, the IRS will send you a payment based on your Form 1099-SSA).

Of course, you should also take into consideration any refund you would be due on your 2019 return. If it’s substantial enough that you don’t want to wait, then...well, you’ve got a decision to make. A large refund now and potentially a smaller stimulus, or a larger stimulus now and the same refund in a few months.

Of course, the stimulus payment is intended to be an advance payment against an actual credit you will compute on your 2020 tax return. Thus, you may suspect that in Example 4 above, by delaying the filing of their 2019 return in order to receive a $2,900 advance payment, A and B will receive only a temporary benefit, because when they file their 2020 return, they will receive a credit of only $2,400, and will be required to recognize income or, worse, pay back the extra $500 credit.

But that’s not how the stimulus package appears to work. In fact, it’s favorably one-directional: if your advance payment is LESS than what you’re owed when you compute your 2020 return, you’ll get the excess as a credit on that return. But if your advance credit is GREATER than what you’re actually owed come the filing of your 2020 return, there appears to be no mechanism to either 1) repay the excess payment, or 2) recognize the excess amount as income.

As a result, every taxpayer who has not yet filed their 2019 return must consider whether doing so will increase or decrease their stimulus payment and react accordingly.

Thanks to Tony Nitti for this article.

 As Your South Florida Connection REALTOR my mission is to keep you as educated as possible!

Stay Safe Everyone!