Next stimulus checks may be more 'targeted'
Congress has been considering reducing the income limits to qualify for a relief payment, which could make it tougher to get the full $1,400 proposed for the upcoming round. The IRS will look at your most recent tax return to determine how much money you can receive.
The first two stimulus checks phased out for individuals with annual incomes above $75,000 and married couples earning over $150,000, but the Democrats who control Congress have reportedly been talking about restricting the next payments to people with lower incomes.
According to multiple media outlets, there was talk in Washington of shrinking the phaseout threshold for singles to $50,000.
That means if you faced a significant income drop in 2020 because of the pandemic, you'd want to get that information in front of the IRS promptly — since the tax agency will base your eligibility for stimulus cash on the last return you filed.
So, for example, if you made $75,000 in 2019 but only $45,000 in 2020, your 2019 income could disqualify you for a full payment but your 2020 earnings would get you the $1,400.
The bill is moving quickly — and so should you
Monday night, House Democrats unveiled a proposal to keep the existing income limits, meaning individuals making $75,000 would still get a full payment. But the thresholds could eventually get tweaked by the Senate.
Democratic leaders hope to have a COVID rescue bill completed by the end of February, and the IRS will likely get started soon on the administrative work needed to get the checks out rapidly after President Joe Biden signs the legislation into law.
Fortunately for you, electronic filing using today's tax software can get your return into the IRS' system almost instantly. So even though you have until April 15 to file your taxes, you may not want to wait if you’ve got relief money on the line.
And while you’re working on your return, it's important to remember that money you received in stimulus checks last year is not considered income and you are not expected to pay tax on it.
Just think of those payments as early tax credits that reduce your tax liability for 2020.
What if you never got a stimulus check? Your tax return helps with that, too
If you never received a $1,200 stimulus check last spring or one of the $600 payments that started going out before New Year's, you can claim them as tax credits and receive the money in the form of a refund.
But you have to know where to look on your return. Don’t expect to find a line for "stimulus checks" or "economic impact payments" —instead, you'll see "Recovery Rebate Credit" on Form 1040 or 1040SR.
If there’s a difference between what the IRS paid you and what you should have received, you’ll fill in that amount on the designated line. That number will either increase your refund amount or decrease what you owe the IRS for 2020. Good tax software can help you provide the information.
What if you don’t typically file a tax return because you don’t make enough money? Well, you’ll have to fill out a form this year to claim what you’re entitled to. On the bright side, you may find you're eligible for some other tax credits you were unaware of, that you’ll be able to claim.
What if your return won't help you get the full stimulus check?
If the income barriers for getting stimulus checks are lowered and you won't qualify for a full payment — even if you submit your tax return early — here are some options to essentially make your own stimulus check:
- Make saving your policy. You don’t always have to pay a, well, premium on the best insurance policies. From auto insurance to homeowners insurance, shop around and make sure you’re not paying more than you should.
- Cut the cost of your debt. If you’ve got a lot of credit card debt, you're probably paying a ton of interest. Tame that debt — and make it go away more quickly — by sweeping up your balances into a single, lower-interest debt consolidation loan.
- Stretch your dollars. Look for ways to find a little budge in your budget. Turn down the heat a little to save on electricity. Get rid of your cable or one or two streaming services. Meal-plan for the week and cut back on expensive ingredients. And, download a free browser extension that will automatically find you deals and coupon codes every time you shop online.
- Do the hustle. If you’ve got a useful hobby or skill, turning it into a side hustle is as easy as setting up a profile. An online marketplace for gig work can help you connect with the right people to get your freelance business up and running.