How the Second Economic Stimulus Bill Affects Taxpayers

For the second time in a calendar year, the IRS is busy issuing “economic impact payments” or “recovery rebates” to help individuals and families economically impacted by the Covid-19 epidemic. Just like last year’s payment, this year’s payment was part of a Covid-19 stimulus package passed by the United States Congress.

These payments will be in the amount of $600 for eligible taxpayers or up to $1,200 for a married couple filing jointly. Parents of dependent children under 17 will also get an additional $600 per dependent.

In this article, we will guide you through everything you need to know about how this second stimulus package will impact you as a taxpayer.

Frequently Asked Questions About the Stimulus

Who is eligible to receive a payment?

Any single U.S. citizen and resident whose adjusted gross income (AGI) is under $75,000 is eligible. This is also the case for married individuals filing separately. If you are a married U.S. citizen or resident filing jointly, your AGI must be $150,000 or less. Additionally, if you file head of household, your AGI must be $112,500 or less.

Anyone who is dependent on another taxpayer is not eligible for this payment. Additionally, anyone who does not have a social security number to authorize employment in the U.S. is also ineligible.

What if you earn more than the above thresholds?

Stimulus payments begin being phased out when AGIs are above the thresholds for filers. The IRS reduces stimulus payments by 5% for the total amount that you made over the AGI limit. This means that for every $100 that you make over the limit, your check goes down by $5. Checks phase out entirely as the income passes certain thresholds. For example, if you earned over $87,000 as an individual taxpayer, $174,000 as a joint filer, or $124,500 as a head of household, you do not get a stimulus payment at all.

Will my stimulus payment have taxes withheld from it?

All stimulus payments are nontaxable. The payments are advances on refundable 2020 tax credits so please provide the amount of payments you received to us when providing your tax information to us this tax season. You will neither owe taxes on this payment nor will it decrease your 2020 refund.

How will I receive my payment?

The majority of eligible taxpayers won’t have to do anything to receive their payment. The IRS will be sending the payment automatically to all eligible taxpayers.

Your payment will be deposited in the account that is connected to your taxes through the IRS. If you receive your yearly tax refund via direct deposit, your payment will be directly deposited. If you receive your refund as a paper check, you will receive this payment as one as well. If you would like to switch from paper check to direct deposit, you can go to this page on the IRS website.

What will happen if I haven’t filed my 2019 taxes yet?

If you requested an extension through Form 4868, October 15 was the deadline to file for 2019. If you still haven’t done so, we recommend that you do so as quickly as possible. The IRS has a deadline of January 15, 2021 to process all stimulus payments. You can also claim a refund on your 2020 return when it is completed for any payments you were eligible for but did not receive due to late filing of your 2019 tax return.

What if I don’t have to file a tax return?

Those who don’t have to file a tax return include those who receive social security, supplemental security income, social security disability income, railroad retirement or veterans’ compensation and pension benefits. These individuals will have their payments automatically created using information from the Social Security Administration or the Department of Veterans Affairs. You will either receive a direct deposit or a paper check depending on how you receive your regular benefits.

Am I eligible for payment for dependent children if I’m a non-filer?

If you are a non-filer and have a dependent child under age 17, you need to register your dependent(s) using this tool to receive the additional payment of $600 per child.

2020 COVID relief bill provisions affecting individual taxpayers

Besides the Recovery Payment described above, the Relief Bill passed by congress also contains many provisions that may affect you for the next coming months. Below, we have outlined some highlights that we think you should be aware of as we continue to navigate our way through this 2021.

Educator Expense Deduction

If you are an educator, you are no doubt aware of the $250 deduction you can claim each year on supplies you purchase out of pocket for your classroom. With this bill, you can now include PPE, disinfectant spray or wipes and any other supplies you purchased after March 12, 2020 to reduce the chance of spreading Covid-19 in your classroom.

AGI “Floor” on Medical Expenses

In years past, medical expenses could be deducted if they reached the minimum of 10% of your AGI. In this new bill, your AGI floor on medical expenses has been made 7.5% permanently. This lowering of the floor will make many more taxpayers eligible for the medical expense deduction.

Mortgage Insurance Premium Extension

Deductions for your mortgage insurance premium has been extended for a year. This means your deduction for qualifying mortgage insurance premiums has now been extended through 2021.

Above-the-Line Charitable Contribution Extension

For taxpayers who don’t itemize deductions, a $300 above-the-line deduction can be made for cash contributions to qualified charitable organizations through 2021. If you are a joint filer, this deduction is $600. However, there is also an increased penalty for those who overstate how much their cash contribution was for the year. If they overstate how much they have given, they are now subject to a 50% penalty instead of a 20% penalty.

Charitable Donations and AGI

Also extended through 2021 is the allowance of charitable donations up to 100% of a taxpayer’s AGI. Previously, the limit was 60%.

If you need more help with how this most recent recovery bill will affect you and your family come tax time, the experts at Cooke, Lavender, Massey & Company, P.C. are here to walk you through the process. Contact us today to discuss how this latest recovery act can help you.