• Attorney Andrew Steiger

Covid Relief Stimulus Payment Update for 2021

The Treasury will be distributing funds according to the the American Rescue Plan Act of 2021, signed into law on March 11, 2021. The Treasury is actively distributing stimulus checks to taxpayers who qualify. Taxpayers who filed their previous tax return using direct deposit to claim a refund, or provide a payment, will receive their Covid relief stimulus funds first. Taxpayers who receive refunds by mail will have to wait for the Treasury to mail those out. Currently the wait could be up to 12 weeks for the mailed checks.

How to Claim Your Covid Relief Stimulus Refund

Taxpayers who previously filed a 2019 income tax return will not need to do anything else if they qualify for the current round of $1,400 per person Covid relief. The IRS will automatically use data from the 2019 tax returns to determine if the taxpayer qualifies. If you do not qualify by using 2019 tax return information, you may still qualify if you use your 2020 tax return information. If you have not filed your 2020 tax return, you still have time and should do so after carefully considering if you could qualify for other relief in the latest Covid Relief law passed by Congress. Included in the bill are additional child tax credits and tax relief for taxpayers who received unemployment income during the pandemic.

Should I File My 2020 Income Tax Return Now?

Importantly, if you qualify based on your 2019 adjusted gross income, but would not qualify based on your 2020 adjusted gross income, you should NOT file your 2020 tax return until after you receive your stimulus. The IRS will use your 2020 tax return information if it is available to determine if you qualify. Therefore, delaying your filing until after you receive your stimulus is a smart idea if you qualify for relief using your 2019 tax return data. If you qualify based on your 2020 tax return information, you should file. Take note about other potential issues and income thresholds for the child tax credit and unemployment income exemption, because you may be entitled to more IRS tax relief.

Taxpayers who normally paper file their return should strongly consider filing electronically this year. The IRS has experienced significant delays processing returns, including extensions in the prior year, and taxpayers who need the Covid relief payments now likely will not receive the funds for a long time if they paper file their return.

Who Qualifies for the Covid Relief $1,400 Payment?

For single taxpayers, the Covid relief adjusted gross income must not exceed $75,000 to receive the full $1,400 payment. For income above $75,000, the payment is phased out proportionately until income reaches $80,000. At the $80,000 amount, no Covid relief payment is available.

For married filing jointly taxpayers, the income threshold is $150,000 adjusted gross income, with a phase-out of $10,000 up until the taxpayer's adjusted gross income reaches $160,000. At that point, no Covid relief payment is available for the spouse and children, if any.

For a head of household filer, the threshold is $112,500 with a phase-out of $7,500. At $120,000 of adjusted gross income, there would be no Covid relief payment for the taxpayer or children.

Taxpayers may qualify to file unless they are non-resident aliens, dependents, or an estate or trust. Taxpayers must include valid social security numbers to receive the payment. If only one spouse qualifies, that spouse would receive the payment but the other spouse (without a social security number) would not.

What is the Recovery Rebate Credit?

The Recovery Rebate Credit relates to the Covid relief passed prior to the current America Rescue Act in March 2021. The Covid relief passed in March 2020 and January 2021 are refundable credits that were considered advanced refundable credits for the taxpayer's 2020 tax return (due by April 15, 2021). Some taxpayers either had not filed their 2018 or 2019 tax returns, or did not qualify for the advanced refund using the 2018 or 2019 tax information, but would qualify using 2020 tax return adjusted gross income. Those taxpayers who qualified for the tax relief, but did not receive a payment, can file for the payment under the Recover Rebate Credit on their 2020 tax return.

How is the America Rescue Act Covid Relief Payment Different?

The latest $1,400 payment is technically a early refund or rebate of a refundable tax credit for your 2021 tax return. This means the amount you receive is not income, just like the payments received in 2020 by many taxpayers. Do not include this as income in your federal or state income tax returns.

Another difference is that the Covid relief payment may be paid for dependents who are older than age 17. The prior Covid relief limited dependents to 17 years old. The America Rescue Act of 2021 allows for dependents to be older and is not age limited. This means if you filed a 2019 return that did not list dependents or did not list dependents 17 or older, you may not receive the full stimulus payment you are entitled to. You may have to claim these dependents when you file your 2021 tax return next year as a recovery rebate and claim the difference as a refundable tax credit.

Is there Unemployment Income Tax Relief Available?

The America Rescue Act of 2021 also provides tax relief for unemployment income received during 2020. Congress believed an exemption for some income was necessary because many taxpayers did not withhold any income tax on unemployment income received. Unemployment income is normally taxable by both the IRS and state taxing authorities. The government agency distributing the unemployment income will issue a 1099-G to taxpayers for IRS reporting purposes.

The exemption amount is up to $10,200 of unemployment income received during 2020. There is a cutoff of this exemption of $75,000 for single taxpayers, $112,500 for head of household, and $150,000 for married filing jointly taxpayers. The amount relates to modified adjusted gross income, which does not factor in the possible $10,200 exemption reduction to income. So taxpayers would calculate AGI without reducing AGI for the up to $10,200 exemption amount related to unemployment income. Importantly, there is NO phaseout for the exemption - you get it if modified AGI is less than $150,000 for married filing jointly taxpayers or you do not if your modified (MAGI) is $150,000 or more. Taxpayers who do not qualify at first estimate may be able to contribute to an HSA or deductible IRA to reduce their MAGI below $150,000 (or $75,000 for single filer) to qualify. The difference in tax savings could be a lot.

Questions? Contact Detroit Tax Attorney Andrew Steiger

If you have any questions about the above topics, or need help filing your tax returns or with back taxes, contact Detroit Tax Attorney Andrew Steiger for a free consultation. He can help you file your returns with confidence to get every deduction, credit, and refund amount you are entitled to. Contact him at (248) 259-6367 or email andrew.steiger@steigertaxlaw.com.

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