What You Ought to Know About Checks, Taxes, and Unemployment

Uncle Sam just can’t stop giving away money.

The third round of stimulus payments was incorporated into law on March 11th and provides up to $ 1,400 per eligible person, including qualified children and non-dependent persons. Payments start this weekend.

They are part of the US bailout plan, which also included improved child tax credits, more COVID-19 aid, support to state and local governments, business aid and other regulations totaling around $ 1.9 trillion.

Here are some of the key features of the legislation, focusing on stimulus payments and other changes that are particularly relevant to individuals rather than businesses.

How high are the stimulus payments?

They cost up to $ 1,400 per person and qualify children and non-children. That’s more than the maximum of $ 1,200 in the first round ($ 500 for children) and $ 600 in the second round ($ 600 also for children). The third round maximum payment is for incomes up to $ 75,000 (singles), $ 112,500 (heads of household), or $ 150,000 (married couples filing together). Pensioners also receive payments if they are below the income thresholds.

Will everyone get a boom?

No. Payments run steadily but fairly quickly this time around, ending entirely for singles with incomes of $ 80,000, $ 120,000 for heads of household, and $ 160,000 for couples. They are based on adjusted gross income. For more information, see the Get My Payment tool at irs.gov.

Are the stimulus payments taxable?

No. The final payments are special 2021 tax credits paid in advance.

Can I delay filing my return for 2020 if it results in a higher incentive payment?

Yes. If the Internal Revenue Service hasn’t received your 2020 return, it will use 2019 earnings to determine eligibility for that final round. “Taxpayers who see an increase in adjusted gross income in 2020 compared to 2019 may want to withhold filing tax returns for 2020,” advised tax researcher Wolters Kluwer.

Some people may already be doing this. By March 5, the Internal Revenue Service had received around 56 million individual returns, which were below the prior-year level. For the entire past year, the IRS generated nearly 170 million individual returns.

What if I get nothing or the correct amount on this last round?

If you are eligible, you can claim the funds when you file your 2021 tax return next year, just like some taxpayers claim the “Refund Credit” on 2020 tax returns if they haven’t received proper payments in the first two rounds.

How are stimulus payments made?

Previous stimulus funds were sent through direct deposits, checks, or special debit cards that some were surprised to receive. The IRS confirmed that all three methods are used, with most households receiving payments as direct deposits.

Any ideas how to use the money?

It varies from person to person, but paying urgent bills or credit card balances or topping up your emergency fund are all good decisions.

Much of the money goes into savings accounts or investments. Deutsche Bank conducted an online survey and found that a significant percentage of respondents, especially younger adults, plan to take their funds public.

This led investment researcher Morningstar to suggest five companies that it believes are undervalued and good choices for economic funds: Anheuser-Busch InBev, CVS Health, Hanesbrands, Kellogg and Wells Fargo. But if you’re just starting out, a broadly diversified equity fund might be a better choice.

Will creditors have access to stimulus payments in this final round?

Apparently so. Unlike the previous stimulus plan in December, the new legislation does not prohibit collection agencies from garnishing stimulus funds deposited into bank accounts, said Lauren Saunders, deputy director of the National Consumer Law Center.

However, the IRS said the payments will not be used to offset any overdue federal debt or back taxes.

What about unemployment benefits?

The law extends these benefits so that unemployed people can receive an additional $ 300 weekly unemployment benefit through early September. The Arizona Department of Commerce said individuals who are eligible and currently receiving benefits should not experience any payment default.

Unemployment benefits are usually taxable, but the law exempts the first $ 10,200 of benefits received in 2020 from tax for households with incomes less than $ 150,000.

If I have already submitted my 2020 tax return, should I change it?

You may want if you received unemployment benefits in 2020 that are now tax-free even though the IRS has not yet clarified how to deal with this issue by those who have already applied. Presumably, a change in the rate of return could also affect the amount of the stimulus payments to which you are entitled. But there is no need to rush.

“Normally you would think about an amended return, but the IRS could find another way so that all these people don’t have to file an amended return,” said Mark Luscombe, Principal Analyst at Wolters Kluwer.

What about the child tax credit?

There have been several improvements here. The new loan, only for 2021, will increase from previously $ 2,000 to $ 3,000 (and $ 3,600 for children under 6), said Jeremy Kisner, certified financial planner at Surevest Private Wealth in Phoenix.

Does everyone with children get this tax break?

No. The amounts expire on higher incomes and start at about the same level as stimulus checks – $ 75,000 for singles, $ 112,500 for heads of household, and $ 150,000 for joint applicants.

“The exit works differently,” said Kisner in a comment. The increased portion of the loan from $ 2,000 to $ 3,000 (or $ 2,000 to $ 3,600 for children under 6) will expire by $ 50 if $ 1,000 taxpayers are above the relevant income threshold, he said.

These credits will be fully refunded for 2021 rather than partially refunded as before.

If you can qualify for a higher child loan by not filing your 2020 return until later this year, it might be worth the wait, Luscombe said. Automatic renewals are allowed until October 15th.

Did the proposed increase in the federal minimum wage to $ 15 an hour become law?

No. By the way, Arizona’s minimum is now at $ 12.15 an hour and will continue to rise due to inflation. The federal minimum remains at $ 7.25 in around 20 states.

What about higher spending on COVID-19 tests and vaccines?

Yes, federal funding for everything that is in the legislation. According to tax researcher Baker Hostetler, $ 7.5 billion is for vaccine distribution, $ 5.2 billion for vaccine procurement, and $ 48.3 billion for testing, contact tracing, and personal protective equipment for healthcare workers contain.

What are other program recipients?

The legislation provides for $ 50 billion for a federal disaster relief fund, $ 125 billion for kindergartens through 12th grade, $ 39.6 billion for colleges and universities, and $ 39 billion for childcare programs, according to Baker Hostetler .

That’s in addition to $ 25 billion for emergency rental assistance, $ 7.6 billion for community health centers, $ 7 billion for broadband distance learning support, $ 4.5 billion for the Low-Income Home Energy Assistance Program; and $ 3.8 billion in government mental health and substance abuse programs.

The legislation also extends a 15% increase in the Supplemental Nutrition Assistance Program or SNAP benefits through September, according to Baker Hostetler.

Will all of this relief help prop up consumer finances?

It should. Credit card defaults and bankruptcies in particular have declined sharply in the past year.

As another example, approximately $ 10 billion in homeowner assistance “will help prevent thousands of foreclosures, especially in color communities,” said Alys Cohen, attorney for the National Consumer Law Center.

“This new program will help homeowners facing COVID difficulties catch up on their mortgages, property tax or insurance payments, and utility bills.”

Are there other important regulations that affect individuals?

There are many others. Some of the others highlighted by Wolters Kluwer are:

  • An extended child and care-dependent loan that includes, among other things, a higher dollar amount for the loan and eligible expenses.
  • An expanded earned income tax credit, including higher loan amounts for recipients without children and with higher income thresholds to receive benefits.
  • Increased tax credits under the Affordable Care Act for 2021 and 2022.
  • Exclusion of waived student debt from taxation for loans taken out after 2020 but before 2026.

Reach the reporter at [email protected].