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By Numbers Blog

Third Stimulus Package – Individuals, Here’s What It Means For You


According to the Treasury Department, the third round of $1,400 COVID 19 stimulus checks, which have approval from the American Rescue Plan, have begun rolling out. Individuals earning below $80,000 and joint tax filers maxing below $160,000 are eligible to receive a stimulus payment.

While these stimulus payments are helpful and a good initiative, they lead to some complex accounting and bookkeeping outcomes. Without the proper knowledge, it can be challenging to account for these stimulus packages in your tax returns. A lot of people don’t even know how to receive the checks or if they’re eligible or not.

Here’s a complete breakdown of what the third stimulus package means for you!

When Will You Get The Check?

Both the IRS and the Bureau of the Fiscal service have begun processing payments from 12th March. Some who are eligible started receiving the checks from the 13th-14th of March. Other recipients can expect to receive their packages in the coming weeks.

These payments are sent out initially through direct deposit, followed by paper checks and prepaid debit cards. The IRS also gives those that are eligible the opportunity to track their payment status through the website.

There’s a “Get My Payment” portal that’ll provide applicants with all the necessary information about their payment. It’s a good idea to keep checking the IRS website after every few days as they’ll post updates.

Taking the second round of payments as a reference, recipients got their initial packages through direct deposits. Stimulus checks followed these up, and prepaid debit cards that contain the stimulus payment were also sent out.

In a recent briefing, Jen Psaki, Whitehouse press secretary, revealed that 90% of the stimulus payments would be sent through direct deposits to the bank accounts. These direct deposits will be followed up by check and prepaid debit cards.

There’s no set guarantee on the time of delivery, however. Statistics indicate that approximately eight million eligible individuals have not received their payments from the first two rounds. To that extent, President Biden sent out an executive order to the Treasury Department to directly deliver all payments to eligible individuals.

It’s essential to note that the IRS is continuously reiterating that the COVID-19 pandemic is causing a delay in the services. As a result, you should be ready for the checks or prepaid debit cards to take extra time to arrive. The most common delays that the IRS faces come in the form of paper processing and electronic tax returns.

Along with the stimulus payments, the agency will also send out letters. These will be Notice 1444-A and Notice 1444-B. The letters would contain information regarding the breakdown of payments, the delivery, and how recipients should report them if they didn’t receive them. Keep the latter around for tax purposes.

The IRS has also created an online tool to help individuals with incomes so low that they can’t file tax returns, receive the stimulus by submitting their personal and banking information.

How Much Will The Third Stimulus Check Pay?

One of the first things that President Biden did was announce a $1.9 trillion coronavirus relief plan. The relief plan includes a third round of stimulus payments worth $1,400 to supplement the $600 checks approved in December 2020.

The initial coronavirus relief plans had set targeted income limits of $75,000 for individual taxpayers and $150,000 for joint filers. For every $100 above the income limits, the individuals would lose $5 from the stimulus payment. However, the new plan cuts off high earners at $80,000 for individuals and $160,000 for joint filers.

It’s slightly complex to understand at first, but there’s no need to panic. We’re going to go into detail about how the third stimulus check is calculated and exactly what amount you can expect to receive. There are several different variables that combine to help determine what amount you’ll receive on the stimulus check.

How Will The Third Stimulus Check Be Calculated?

According to the stimulus plan, the treasury must look at the individuals' tax returns from 2019 and 2020 to calculate what they’ll receive from the third round of stimulus checks.

The limits that congress approved are based on adjusted gross income (AGI) ranges. If you’re familiar with bookkeeping, you’ll already be in the know about AGI. However, most people tend to gloss over the term and don’t fully understand what it means.

Adjusted gross income is the value you get after subtracting all adjustments to income from the gross income. Gross income doesn’t just include your wages or salary. It considers wages, dividends, capital gains, business income, retirement distributions, and other income. The value of the AGI will never exceed the value of your gross income.

Taxpayers that are making less than the minimum payment limit on their AGI can expect to receive the full stimulus check. While those that earn above the limit will receive a smaller payment

Who Is Eligible To Receive The Third Stimulus Payment?

When it comes to eligibility, the estimates indicate that millions of Americans can expect to qualify for the third round of stimulus payments. Those that are eligible could potentially receive up to $1,400. However, a caveat of the new stimulus plan is that there’s been a slight tweak in the eligibility criteria.

Several high-earning taxpayers aren’t going to be excluded from the stimulus checks despite being eligible in the previous round. Individuals that earn over $80,000 and joint tax filers that make over $160,000 will not receive any stimulus payment.

For individual taxpayers, the phase-out begins from $75,000 and ends at $80,000. The head of household phase-out starts at $112,500 and ends at $120,000. While for couples, the phase begins at $150,000 and ends at $160,000.

It’s the same principle but is slightly different from the sliding scale used in previous rounds of payment. During the last rounds of payments, the IRS would reduce the stimulus payment by 5% of the total amount made over the AGI limit. In basic terms, that means the payments went down $5 for every $100 above the limit.

Here’s a breakdown of the current stimulus payment structure

Single Taxpayers

  • $75,000 - $1,400 Payment
  • $76,000 - $1,120 Payment
  • $77,000 - $840 Payment
  • $78,000 - $560 Payment
  • $79,000 - $280 Payment
  • $80,000 and above - $0

Joint Taxpayers

  • $150,000 - $2,800 Payment
  • $152,000 - $2,240 Payment
  • $154,000 - $1,680 Payment
  • $156,000 - $1,120 Payment
  • $158,000 - $560 Payment
  • $160,000 and above - $0

For the previous round of payments, the cutoff point for single taxpayers was $87,000 and above. Couples earning income over $174,000 were ineligible during the last round of payments.

Adult Dependents

One of the new stimulus plans' critical features is that it expands eligibility to a host of adult dependents. These include college students, the elderly, and adults with disabilities.

Under the rules of the new stimulus plan, both joint tax filers and heads of household will get an additional $1,400 payment for every dependent in the house. Age is no longer a factor.

However, this means that households that earn an income over $120,000 and above will no longer receive additional stimulus checks. Whereas in the second round of payments, houses with an AGI under $146,500 per year would receive further stimulus checks.

Does The IRS Tax Stimulus Checks?

When it comes to your tax and bookkeeping requirements, the IRS doesn’t consider stimulus check as taxable income. You don’t have to worry about reporting the stimulus payments while filing your income tax returns.

Even if you haven’t fully paid taxes, that still lets you qualify to receive a stimulus payment. The IRS does not use the amount to offset any federal or state tax debts, as is the case with normal tax refunds.

While there are efforts in place to ensure that all eligible Americans receive their stimulus checks, the payments will take some time to arrive. In the case of qualifying taxpayers not receiving their full payment, they have the opportunity to claim a recovery rebate credit. The rebate will allow you to either increase the tax refund or lower the bill. You can find additional information on how you can claim the recovery rebate credit on the IRS website.

What Tax Return Will Determine Your Third Stimulus Check?

The IRS will use tax returns from either 2019 or 2020 to determine whether you’re eligible to receive the third stimulus check. Take note that if your income fell during 2020, there’s a significant advantage to filing your tax returns earlier. It can help qualify for a more extensive third stimulus check, so it might be a good time to call your CPA. This new stimulus plan focuses on lower-income ranges and excludes higher-earning taxpayers from getting a payment.

Conclusion

The impact of the pandemic has been felt all around the country, and many Americans will benefit from the stimulus checks. It’s a good idea to stay up to date with all the aid you can potentially receive!


FUTURE IMPORTANT DEADLINES


03/01/21

Deadline for businesses to mail Forms 1099 and 1096 to the IRS

03/15/21

Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065) or to request an automatic six-month extension of time to file (Form 7004)

03/31/21

Deadline for businesses to e-file Forms 1099 and 1096 to the IRS, except Form 1099-NEC

04/15/21

Deadline to file individual tax returns (Form 1040) for the tax year 2020 or to request an automatic extension (Form 4868) for an extra six months to file your return, and for payment of any tax due, and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020, or to request an automatic six-month extension of time to file (Form 7004) for corporations that use the calendar year as their tax year

04/15/21

Deadline for household employers who paid $2,200 or more in wages in 2020 to file Schedule H for Form 1040

04/15/21

Deadline for first-quarter estimated tax payments for the 2021 tax year

06/15/21

Deadline for second-quarter estimated tax payments for the 2021 tax year

09/15/21

Deadline for third-quarter estimated tax payments for the 2021 tax year

09/15/21

Deadline for S-Corporate tax returns (Form 1120-S) for tax year 2020 for S-Corporations that use the calendar year as their tax year, and for filing Partnership tax returns (Form 1065)

10/15/21

Final extended deadline to file individual tax returns for the year 2020 (Form 1040), and for Deadline for corporate tax returns (Forms 1120 and 1120-A) for tax year 2020 for corporations that use the calendar year as their tax year