When You File Your 2019 Tax Return Will Impact Your Stimulus Payment
March 26, 2020
March 26, 2020
As part of the recent $2 trillion stimulus package passed by Congress, most people will receive a check or direct deposit in the coming weeks and months. But how much will you get?
The answer, in multiple respects, is “it depends.”
First, it depends on your filing status: if you’re single, the payment is $1,200, but it doubles for a married couple filing jointly to $2,400.
It also depends on your family size; you’ll get an additional $500 for every child under the age of 17.
In addition, if you are claimed as a dependent on someone else’s tax return, you are not entitled to any payment at all.
And for high-income taxpayers, it depends on just how high your income goes; a married couple will start to lose the payment once adjusted gross income (AGI) — think, all of your income less only a few deductions — exceeds $150,000, and the same will occur for a single taxpayer once AGI exceeds $75,000.
Easy enough…but lost among the other aspects of the calculation is that your payment also depends on whether or not you have filed your 2019 tax return, and that is a factor that you may still control.
According to the new law, the IRS is going to look first to your 2019 tax return to compute the payment. If no 2019 return has been filed, however, the IRS will grab your 2018 return instead. (If you receive Social Security and don’t need to file a return, the IRS will send you a payment based on your Form 1099-SSA).
This, of course, presents opportunity. An individual who has not yet prepared his or her 2019 return should take into account the relevant variables — adjusted gross income, marital status, number of children — and determine which year would yield the bigger payment. If it’s 2019, then you’d better hurry up and file; if it’s 2018, then hold that 2019 return back until you receive your payment.
Example 1. In 2018, A and B are married but have no children. Adjusted gross income for the couple is $200,000. In 2019, however, A and B have a child, and B takes a leave from work. As a result, income has dropped to $120,000.
Based on A and B’s 2018 return, they would receive no stimulus payment because their income exceeds the phase-out limit. Based on their 2019 return, however, they are entitled to a payment of $2,900 ($2,400 + $500). As a result, A and B should file their 2019 return as quickly as possible.
Example 2. C is claimed as a dependent on her parents’ tax return for 2018. In 2019, C graduates college and gets a job, and is no longer claimed as a dependent.
Based on C’s 2018 return, she is not entitled to any payment, because she is claimed as a dependent on another’s return. Based on her 2019 return, however, she is entitled to a stimulus payment of $1,200. As a result, she should file her 2019 return as quickly as possible.
Example 3. D, a single taxpayer, left the workforce in 2017 to go back to school. D was in school full time throughout 2018 and 2019, and as of yet, has not filed a return for either year. D should quickly file a 2019 return, even with no income, in order to generate a $1,200 stimulus payment.
In other scenarios, it will behoove you to delay filing your 2019 return until AFTER you’ve received the stimulus payment, a task made easier once the IRS delayed the April 15th filing deadline to July 15, 2020.
Example 4. In 2018, A and B have a 16-year old daughter and income of $120,000. In 2019, they have the same income, and their daughter has turned 17.
Based on A and B’s 2018 return, they are due a payment of $2,900 ($2,400 + $500). Based on their 2019 returns, however, the payment would drop to $2,400, because their daughter has turned 17. As a result, A and B should delay filing their 2019 return until they receive their payment.
Of course, you should also take into consideration any refund you would be due on your 2019 return. If it’s substantial enough that you don’t want to wait, then…well, you’ve got a decision to make. A large refund now and potentially a smaller stimulus, or a larger stimulus now and the same refund in a few months.
Of course, the stimulus payment is intended to be an advance payment against an actual credit you will compute on your 2020 tax return. Thus, you may suspect that in Example 4 above, by delaying the filing of their 2019 return in order to receive a $2,900 advance payment, A and B will receive only a temporary benefit, because when they file their 2020 return, they will receive a credit of only $2,400, and will be required to recognize income or, worse, pay back the extra $500 credit.
But that’s not how the stimulus package appears to work. In fact, it’s favorably one-directional: if your advance payment is LESS than what you’re owed when you compute your 2020 return, you’ll get the excess as a credit on that return. But if your advance credit is GREATER than what you’re actually owed come the filing of your 2020 return, there appears to be no mechanism to either 1) repay the excess payment, or 2) recognize the excess amount as income.
As a result, every taxpayer who has not yet filed their 2019 return must consider whether doing so will increase or decrease their stimulus payment and react accordingly.