April 13, 2021
American Rescue Plan Act Recovery Rebates
Congress passed the latest round of stimulus legislation in mid-March called the American Rescue Plan Act. Most provisions are temporary expansions for 2021 to fight the pandemic.
One item in the package that will affect many of you as well as our clients is the latest round of Recovery Rebates also referred to as stimulus payments. The first payments started hitting bank accounts the week after the bill was signed, but many consumers have not yet received theirs. Those who receive Social Security or other federal benefits who are not required to file a tax return should have seen their payments last week.
There are some differences to note in this third round of stimulus payments. $1400 per person is being sent out for adults as well as children. The age of dependent children is also not tied to the Child Tax Credit with this round of payments, so those aged 17-24 listed as dependent are eligible, as are older adults who may be dependents on the tax return.
Phase-out limits are also different with this round. Single taxpayers will phase out between $75,000 and $80,000, Head of Household between $112,500 and $120,000, and Married Filing Jointly between $150,000 and $160,000. If you are right on the border this may be a tax planning opportunity to increase your retirement or health savings account contributions to lower your income and be eligible for the payments. If you are in this situation, talk to your tax professional to see whether lowering your AGI might be in your best interest.
Stimulus payments are received as an advanced tax credit. They are not considered income, so they are not taxed or considered as income for financial aid purposes. If your income changes this year and you received more than you are owed, there is no clawback at any checkpoint.
Under the American Rescue Plan, there are as many as three ‘checkpoints’ that the IRS will use to determine if an individual is entitled to a 2021 Recovery Rebate. If your income has gone down or if you had a child that was not included in the first round, there are other opportunities to receive the correct amount.
In some cases, a taxpayer may receive the full amount of the Recovery Rebate at ‘Checkpoint 1’ provided their 2019 or 2020 tax return is filed, and their AGI is equal to or less than the phaseout threshold.
Others will fail Checkpoint 1 (because their income was above the phaseout threshold on their 2019 and/or 2020 tax returns) and have to wait until the Additional Payment Determination Date in ‘Checkpoint 2’ (90 days after the 2020 filing deadline), or until after they file their 2021 tax returns ‘Checkpoint 3’ to receive some or all of their 2021 Recovery Rebate. Still, others may receive portions of their 2021 Recovery Rebate at each of the three Checkpoints! And, of course, if your income is higher than the income thresholds you will not receive any Recovery Rebate at any ‘Checkpoint.'