2021 Stimulus Phase-out Update
The new Biden COVID-19 relief measure, the American Rescue Plan, has been modified to tighten the phase-out of the stimulus payments in an effort to direct the $1,400 stimulus to lower-income individuals and families. The maximum adjusted gross income at which the full benefit is paid is $75,000 for single individuals, $112,500 for heads of households, and $150,000 for those who file jointly. The upper limits at which the benefit is completely phased out to zero is $80,000 for singe individuals, $120,000 for heads of household, and $160,000 for marrieds filing jointly. This constricts the phase-out ranges to only $5,000, $7,500, and $10,000, respectively.
In summary, this is not a cliff where, if you hit an amount, you go from getting 100% to -0-. It is a phase-out where you get a reduced amount beginning at the lower limit.
Here are a few more provisions for the stimulus payments –
- It is not taxable. It is a tax credit, and not income.
- Only those individuals and dependents with social security numbers are eligible. Individuals and dependents with tax identification numbers (‘ITINs’) are not eligible.
- Individuals who were deceased before January 1, 2021 are not eligible. Dependents whose parents are both deceased before January 1, 2021 are not eligible.
- These payments are NOT intercepted and applied to previously-existing tax debt. They are an advance payment of a refundable tax credit for the 2021 tax return, to be applied to the taxes per the 2021 return. However, if the stimulus credit on the 2021 return creates a refund on that return, the refund, then, may be intercepted and applied.
- This $1,400 2021 stimulus payment, as mentioned in the previous point, is an advance payment of a Recovery Rebate Credit (RRC) on the 2021 return. However, it is estimated based on the 2019 tax return, or the 2020 return if filed. If it turns out that your 2019 or 2020 income ended up being greater than the 2021 income, and you did not receive the full stimulus payment because of that, the 2021 return will calculate the actual amount that you should have received based on the 2021 adjusted gross income, and will add the shortage to your return as a credit towards your taxes. I have not seen any specific mention of treatment of stimulus overpayments for this $1,400 round, but, if this round follows the precedent set by the previous two stimulus payments for the 2020 tax return, the taxpayer will not be required to repay the overpayment to the IRS.
- The two previous stimulus payments, as with this upcoming $1,400 stimulus payment, were also advance payments of the Recovery Rebate Credit, and are also being reconciled to the 2020 adjusted gross income on the 2020 tax return…with the same additional credit towards your 2020 taxes for any underpayment.