“Why are stimulus Checks tied to 2020 tax filing?” This is a question on many American’s minds. Most people are aware that President Biden signed the American Rescue bill into law on the afternoon of March 11, 2021. Soon the IRS will distribute 1,400.00 stimulus checks to qualified tax-payers throughout the United States. Of course, this prompts everyone to wonder if they qualify.
To make a long story short, these stimulus payments are available to adults and the adult dependents who were left out of the last bill.”
Taxes “Due” Might Mean “Do” Them Now!
The government does not require us to file special paperwork to obtain this special money. However, the IRS will “use your 2020 tax return information to determine eligibility and to calculate your check — if you’ve filed a return already.” And the IRS adds that if you have not yet submitted your 2020 tax returns, it will utilize your 2019 tax returns to determine the amount of the check.
Checking Out the Difference Between 2019 and 2020
Does anyone see a problem with that? Here’s a rhetorical question, “What if you were an entrepreneur who owned a string of restaurants or a string of beauty salons? And we’ll give you another rhetorical question: What if you were a medical doctor with a specialty that excluded virology and communicable diseases. Suppose you were a surgeon or a cosmetic surgeon?
(You are suddenly having an “aha” moment, right here tin he opening lines of our blog.) You have suddenly realized how different 2019 was from 2020–especially in terms of your income. Perhaps you had to close your practice. Maybe you had to adapt your technology and go digital with online doctor’s appointments. Needless to say, your PPP bills were an additional burden on your income and profit margin.
Thus, we get to the heart of the matter.
Why Has Filing My 2020 Taxes Been Tied to My Stimulus Check?
Now doctors and entrepreneurs are discovering that the government relies on your latest tax filing to calculate your stimulus check. Therefore, if you have not filed your 2020 tax return, the stimulus calculation is based on the 2019 tax filing. And if you made more money in 2019 than in 2020, you are likely to obtain less stimulus money. On the other hand, if the government judges your qualifications based on your lower 2020 Year-of-the-Pandemic taxes, there is a 75% chance you will get the full amount. That’s because in general, pundits are predicting 75% of Americans will be getting the stimulus checks.
Here at Invent Wealth CPA, we have been advising entrepreneurs, physicians, and professionals about the stimulus checks and tax filing for 2020. The bottom line is that many of them will benefit from filing their 2020 income tax immediately. To put it simply, “it may pay to file a return as soon as possible.”
Stimulus Checks: Who Should Be Tax Filing 2020 Tax Return Immediately?
Under certain conditions, you should go into hyper-speed quickly. You should begin working on filing the 2020 return, carefully but quickly. You do not have much time to beat the big send-out of the bill. These conditions include:
1. Did Your Income Take a Covid-19 Nosedive?
First of all, file your 2020 tax right away if your income suffered a steep nosedive in 2020, due to the COVID-19 Pandemic and associated restrictions.
Our Tax Squad wants you to know that the government’s third stimulus bill has placed strict caps on eligibility. You might already know the tax filing rules for maximum stimulus checks, but let us review:
- You will receive the full amount of the stimulus payment with an income no more than $75,000 for single filers. Likewise if you make more than $150,000 as married joint filers, do not expect a stimulus check.
- In the last two stimulus packages, you might have noticed people still received some of their money if they earned a few dollars above the cap.
- The rules of the first two stimulus checks seem to imply some people could receive a partial payment, despite making a little too much money.
- However, this is not true for the upcoming third stimulus check. Invent Wealth CPA reminds you that this third payment disappears if you made $80,000 in 2020, as a single filer.
- Likewise, if you are married tax filers, who made $160,000 together in 2020, do not expect even a fraction of the stimulus money.
2. Did You Have a Child Since You Filed?
(Forgive us for making the title of this topic rhyme. We just could not resist—and perhaps it will help you remember to complete your taxes filing for 2020 soon.)
However, if you have become a mom or a dad since filing last year, we suggest you file for 2020 right now. Did you have a child or add an adult-dependent since filing your 2019 taxes? We remind you at this point that you must file a 2020 return very soon, anyway–just to let the IRS know of your new dependent. It might be difficult to fast-track your tax returns.
However, “$1,400 checks are available for dependents as well. That means adding a child to your family should entitle you to an extra $1,400 in your bank account — as long as the IRS knows about this life event.”
The Child Tax Credit:
Perhaps you are unaware that the coming COVID relief bill reduces child poverty by one-third. It indirectly enriches you with a Child Tax Credit. This credit counts up to $3,600 for children under age six. Stimulus attacks poverty according to an editorial in republicanherald.com
Likewise, this bill endorses up to $3,000 for older children up to age 17. “The relief plan calls for the IRS to pay out half the amount of this credit into people’s bank accounts between July 2021 and December 2021.”
Therefore, be sure the IRS knows about your children through your 2020 Tax Returns. Child tax credit: 5 ways the stimulus package is expected to reduce poverty (msn.com)
1. Now, parents will control a guaranteed stream of income. (The government will also give a bigger tax break to Childless workers.)
2. This program also extends food stamp benefits for families with children.
3. It also reaches out to the unemployed.
4. The bill additionally grants families housing assistance and generous health insurance subsidies.
We should note that this is one-time legislation, but the Biden Administration hopes to renew it in perpetuity.
Terrific Take-Aways From Stimulus Checks and Tax Filing 2020
According to experts at Columbia University and the Urban Institute, we have some poverty-fighting statistics to report:
- The above provisions could possibly reduce the poverty rate among Black Americans by 38%.
- These policies might reduce poverty among Hispanic Americans by 43%.
- Likewise, White and Asian American children could enjoy an improvement in poverty at the level of 24%.
Final Thought: What Could Happen if You Do Not Submit Your get your 2020 return in on time?
In summary, we of Invent Wealth CPA want to see you get every dime to which you and your family are entitled. Let us re-iterate that you might not receive the correct amount of stimulus money without submitting your 2020 taxes. Did you know that until the IRS creates a new and proper form to ask for reconsideration, you might be forced to wait until you file your 2021 tax returns ? That would mean around January of 2022? Please remember, Invent Wealth is here to help you improve your financial health.