The recent COVID-response stimulus bill signed on December 21, 2020 includes a second round of stimulus checks, extension of deferred payroll taxes and individual income tax breaks. Below is a summary of some of the notable effects.
Second Round of Stimulus Checks
Stimulus checks have begun being disbursed this week. Disbursements include $600 per person or $1,200 for married couples filing jointly. An additional $600 will be given per child (must be under age 17) and there is no limit on the number of children that qualify.
Like the last stimulus check, the phase out begins for taxpayers earning over $75,000 as single, $150,000 as married filing jointly, and $112,500 for heads of household. Amounts are calculated using the adjusted gross income from your 2019 federal income tax return. The phaseout starts for every $100 above the income threshold then the stimulus amount drops 5%.
For example, if a single filer earned $75,100, their stimulus check would be $595 ($600 – ($100 X 5%)). You will phase out completely, if, for single filers you earned $87,000, for married filing jointly $174,000, and head of household $124,500. The phase out applies to the additional $600 per child as well.
Recovery Rebate Credit
The Recovery Rebate Credit allows certain taxpayers to receive the full extent of their Economic Impact Payment on their 2020 tax return. Individuals who were phased out from their 2019 income amount may receive the extent of underpayment based on their 2020 income.
For example: Claudia filed as single in 2019 and her income was $80,000. She received both economic impact payments. For the first one, she received $950: ($1,200 – ($5,000 X 5%)). For the second, she received $350: ($600 – ($5,000 X 5%)). In 2020, Claudia’s wages decreased, and she earned $70,000. Because her income in 2020 was less than the $75,000 threshold, she can claim the Recovery Rebate Credit on her 2020 tax return to recover the extent of what she did not receive from her first two stimulus checks. This is a total of $500: (($1,200 – 950) + ($600 – $350)).
However, individuals with income increases in 2020 will not have to pay back stimulus money they already received. There are many false rumors stating the contrary.
Extension of Deferred Payroll Taxes and Increased Social Services
Those payroll taxes which were deferred last year beginning September 1, 2020 through December 31, 2020 have been extended to be repaid by January 1, 2022 instead of the original proposed date of May 1, 2021.
Notables social services include an extension on eviction moratorium and additional rental relief for utility and rent payments. Food assistance benefits have increased and expanded to support families with children in child care.
Individual Income Tax Breaks
Individuals may qualify for Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) based on income amounts from their 2019 or 2020 tax returns. This helps individuals who lost jobs in 2020 and became ineligible for credits. It also helps individuals who faced reduced credits because of a 2020 income reduction.
For more information regarding this bill please visit “Here’s a Look At What’s In the Massive COVID – Response Stimulus Bill”.
For more information about second round stimulus check amounts visit “All You Need to Know About Round Two of COVID-Related Stimulus Checks”.
For more information regarding Recovery Rebate Credit visit “Recovery Rebate Credit”.