The American Rescue Plan (“ARP”), recently signed into law by President Biden, contains a number of provisions designed to keep the economy bouncing back and support people hard hit by the pandemic. One of the key provisions for individuals and families is stimulus checks.
- $1,400 for single taxpayers
- $2,800 for married taxpayers filing jointly
- $1,400 for each dependent for 2021
These payments are subject to phase-outs. If you earned too much, your payment may be reduced or eliminated. See details below. The government is going to make these payments based on your most recent tax return on file with the IRS. They might look at your 2019 or 2020 return. If you get a check there are no clawback provisions. They won’t give you a check and then make you pay it back later because your income rose dramatically in 2020.
- For single taxpayers: phase-out begins at adjusted gross income (AGI) of $75,000; complete phase-out occurs at $80,000.
- For married taxpayers filing jointly: phase-out begins at AGI of $150,000; complete phase-out occurs at $160,000.
- For taxpayers filing as head of household: phase-out begins at AGI of $112,500; complete phase-out occurs at $120,000.
If your income rose or fell dramatically in 2019 or 2020, you, your financial advisor and accountant should look carefully at the phase-out limits and the timing of when your file your taxes.
Example 1: A married couple with 2 kids making $120,000 in 2019, moved their business online in 2020. As they were able to reach a much larger audience their income grew to $325,000. Wahoo! Hold on. If they wait to file their return by requesting an extension, they will get a check for $5,600 (=4x$1,400). Otherwise, depending on when the government processes their check, they might not get it!
Example 2: A person making $90,000 in 2019 lost their job due to layoffs in 2020. Their income was only $40,000 in 2020. They’ll want to file their tax return as soon as possible in order to get their check sooner.
Please note, the decision tree for whether the government will send you a check or not is a multi-part tree. You’ll want to talk to an advisor to make sure the timing of your filing makes sense for your situation.