The American Rescue Plan Act of 2021 is now a done deal. Among the items of greatest interest to most Americans is a third round of stimulus checks—or IRS “recovery rebates”

—of up to $1,400 for every “eligible individual.”

That’s the quick take. But what’s the fine print?

Each eligible individual in your household should receive $1,400. Eligible individuals include:¹

1.     You, as an individual taxpayer

2.     Your spouse (if you are filing a joint tax return)

3.     Any dependents you are claiming on your tax return, regardless of their age

For example: A married couple filing jointly and claiming three dependents on

their tax return would be eligible for $1,400 x 5 = $7,000. This is the case even

if the dependent is, say, an adult child in college, or a parent in assisted living.

The catch? Whether you receive a full, a partial, or no rebate depends on your Adjusted Gross Income (AGI) on your tax return:

Single, or married filing separate

You receive a full rebate if your AGI is … Under $75,000

You receive a partial rebate if your AGI is … $75,000–$80,000

You won’t receive a rebate if your AGI is … Over $80,000

Head of household

You receive a full rebate if your AGI is … Under $112,500

You receive a partial rebate if your AGI is … $112,500–$120,000

You won’t receive a rebate if your AGI is … Over $120,000

Married, filing jointly

You receive a full rebate if your AGI is … Under $150,000

You receive a partial rebate if your AGI is … $150,000–$160,000

You won’t receive a rebate if your AGI is … Over $160,000

All this begs the question: Which AGI are we talking about? Technically, the stimulus payment is a 2021 Recovery Rebate. But like our Great American Pastime (baseball), you actually get up to three “at bats,” or years in which to qualify for a full or partial rebate.

Initially, the IRS will look at the AGI reported on the most recent tax return you’ve already filed, whether that’s your 2019 or 2020 return. If your AGI falls within the “full rebate” parameters above, you can expect to receive your full 2021 Recovery Rebate. Where will the money go? If the IRS has a checking account on file for you, they should be able to issue a direct deposit into that account. Otherwise, they should mail you a check or debit card to your address on file.

Note: Even if you end up reporting higher income in subsequent years,

you will get to keep the full amount of any payment you receive from

Pitch #1. The IRS will not come after you, asking for you to pay it back.

What if you’ve not yet filed your 2020 tax return, but your 2019 income was too high to qualify you for a full rebate? Good news: You get another chance once you file your 2020 return. At that time, the IRS will perform an “additional payment determination.” If your 2020 return qualifies you for a higher rebate than your 2019 return did, the IRS will essentially send you the difference, again via direct deposit or mail. You could receive:

Note: To qualify for an additional payment determination, be sure to file

your 2020 tax return on a timely basis, even if the filing deadline ends

up being extended beyond April 15, 2021. We can provide additional

information about specific deadlines as needed.

What if neither your 2019 tax return nor your 2020 return qualify you for a full rebate? You still have one more chance. If your 2021 income is low enough to qualify, you will be able to file for a credit on your 2021 tax return for any amounts not already received. 

You may have noticed, the range for receiving a partial payment is very narrow, which means fewer taxpayers will fall into it. Most of us will either qualify for a full rebate … or none at all.

If you do fall into the partial-rebate range, the amount you’ll receive will be calculated based on a straight percentage.

For example: A couple filing jointly with no dependents reports an AGI of $155,000,

smack in the middle of the $150,000-$160,000 range. This means half of their rebate

will be phased out. Instead of receiving $1,400 x 2 = $2,800, they’ll receive half of that,

or $1,400.

 

Also, the squeaky-tight gap between receiving a full payment versus nothing at all means a little tax planning could go a long way between now and year-end. Especially if your annual income is close to qualifying you for a recovery rebate, we should touch base soon to explore any 2020 or 2021 tax-planning opportunities that may help. Even if your income falls well within the “yes” or “no” recovery rebate ranges, please let us know if we can address any additional questions or comments. It’s what we’re here for!

¹ Nonresident alien individuals, and estates or trusts are explicitly excluded.