File Your Tax Return Earlier If Your Income Drops in 2020
Tax filing season started last Friday and this comes with an odd twist: when you decide to file your tax return, it can make a difference whether you get a full third incentive check or not. Due to the non-standard timing, checks will be based on your income in 2019 or 2020, so you must strategize which year you will use to maximize how much money you make.
Why timing matters
Under the latest COVID exemption proposal , the IRS will base your incentive check on your Adjusted Gross Income (AGI) and household size using your 2020 or 2019 tax returns , whichever is filed with the IRS when it arrives. time to cut the check.
The reason for this is that President Biden’s COVID Law is expected to be signed into law by mid-March , which is just in the middle of the tax filing season. As a result, there will be a multitude of people who may or may not file their 2020 tax returns when the incentive payments are ready to ship next month when the law is passed (whereas the tax season runs until April 15 , not including extensions ).
Help you pass the incentive test
Knowing how calculated checks will help you decide when it is best to file a tax return: immediately or later in March (according to the Wall Street General Journal , it is not known when the IRS will record revenue for 2019, as it can be in place immediately before a vote according to the law or after the signing of the bill). According to CBS News reports:
The full $ 1,400 assistance program will go to people earning $ 75,000 or less, while couples earning $ 150,000 will be eligible for the $ 2,800 assistance payment. Payouts will plummet for incomes above these levels, ending entirely for single people earning $ 100,000 and couples earning $ 200,000.
The question then becomes: Which year was the worst for your income, 2019 or 2020? If you lost your job in 2019 but returned to normal in 2020, you can postpone filing your 2020 tax return until the law is passed. On the other hand, if 2020 were much worse, you would apply right away. In some cases, the difference may even invalidate your eligibility for a check. For example, a person who earned $ 100,000 in 2019 but then dropped to $ 50,000 in 2020 will not receive a check based on their information for 2019; however, they will receive a check for $ 1,400 when returned in 2020.
Your marital status can also affect your incentive check, depending on how marriage or divorce affects the $ 150,000 threshold for couples versus what it might be for an individual, especially if one of the spouses is earning much more money than the other.
Another consideration is whether you have dependents, especially if they are new year after year, as they are also eligible for $ 1,400 each. Also, unlike previous checks, this time adult dependents are eligible for benefits. In this case, you will receive more money by claiming this dependent in 2020.
Will I lose money if I choose the wrong year?
According to Newsweek , it is not yet clear whether Congress will direct the IRS back to pay the margin for those who will receive payments based on their income in 2019 but are eligible for more money based on their income in 2020.
If Congress follows suit with regard to what they did with the first two rounds of payments , taxpayers who have not paid the full amount due will not receive the rest as a rebate until they file their 2021 tax returns early next year. If this happens, the choice of the year will be less severe, although it will be a long time before you see your money.
In any case, if 2020 qualifies you for additional assistance funds, it is worth filing your tax return in advance. You will receive tax refunds sooner (IRS advises that those who register for direct deposit usually receive their refunds within 21 days) and you reduce the risk of identity theft when a fraudster files a false tax return in your name using stolen personal information …