A third stimulus check isn’t a done deal, but it’s looking pretty likely. The White House is aiming to deliver $1,400 stimulus payments to most adults in the U.S. some time in mid-March — smackdab in the middle of tax season.
To get those payments out quickly, the House Democratic plan calls for using 2019 or 2020 tax returns to calculate payments. That means the IRS would use your 2020 tax return if it had already been filed and accepted, or your 2019 return if it hadn’t.
For most people, it won’t make a difference which year’s tax returns the IRS uses. They’ll qualify for the full stimulus check either way. But there is one circumstance where you would want the IRS to use your 2019 tax return — which means holding off on filing your taxes for last year.
Could Filing Taxes Now Cost You Your Third Stimulus Check?
For a lot of people, the trainwreck, no-good, dumpster fire of a year that was 2020 came with a job loss or a major income reduction. But if you were one of the lucky few who survived the year and made more money than you did in 2019, it could be in your best interest to hold off on filing.
The first stimulus check and second stimulus check both started to phase out at incomes above $75,000 for singles and $150,000 for married couples. The House Democrats’ plan would also phase out payments for people earning above these amounts. A single person making over $100,000 or a married couple making more than $200,000 with no dependent children would be ineligible.
If your 2019 and 2020 incomes were roughly the same, when you file won’t make a big difference to your check. The same goes for if your incomes are nowhere near these thresholds.
But here’s where it may make sense: Suppose you made $65,000 in 2019. Then in 2020, you made $90,000 for whatever reason — you got a big promotion, you took on a second job, you won a $25,000 jackpot.
Assuming that the next relief bill includes $1,400 checks with a phaseout beginning at $75,000 and a $100,000 income limit for singles, you’d get:
- $1,400 if your payment was based on your 2019 return.
- $560 if your payment was based on your 2020 return.
Under the previous two stimulus checks, payments were an advance on a 2020 tax credit, even though they were processed using 2018 or 2019 returns.
If your 2020 income turned out to be above the limits, you’d still be allowed to keep the payments. But if you earned too much based on your 2018 or 2019 returns but your 2020 income qualifies you for the first two checks, you can receive stimulus money with your tax refund.
The third round is expected to work the same way. Bottom line: If you get a stimulus check, you don’t have to worry about paying it back.
Who Should File Their Taxes Right Away?
For a lot of people, filing a 2020 tax return will result in more stimulus money. Unless your 2020 income is drastically higher than your 2019 income, you’ll want to file right away if:
- You had a child in 2020.
- You were eligible for the previous two checks but didn’t receive them or got less than you qualified for, either for yourself or for the child stimulus credits.
- You were claimed as a dependent in 2019 but can’t be claimed in 2020, which will apply to many recent grads.
- You were ineligible for the first two checks based on your 2018 or 2019 income but qualify based on 2020’s income.
Regardless of how quickly Congress moves here, it’s essential that you file your tax return by April 15. Also, remember that if you’re expecting a big tax refund, you’ll delay it if you hold off on filing.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to [email protected].