Congress recently enacted the “American Rescue Plan Act of 2021” which has recently provided and will continue to provide thousands of dollars in stimulus funds to many families. The bill provides different amounts to different people who fall into different adjusted gross income brackets, and also varies by filing status.
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Third Stimulus Check – What You Need to Know
Filers who file “Single” may receive up to $1,400 if their adjusted gross income is $75,000 per year or less. Single filers who earn between $75,000 and $80,000 in adjusted gross income will also receive a check but at a reduced amount.
Married Joint Filers
Married couples filing jointly can receive up to $2,800, so long as their adjusted gross income is $150,000 or less. In the event that they earn an adjusted gross income of more than $150,000 but less than $160,000, they will still receive a reduced amount, but not the full $2,800, subject to a phase-out completely at an adjusted gross income of $160,000. An eligible married joint filer is a couple whose adjusted gross income is $150,000 or less. Married Joint filers are also able to receive money for qualifying dependents, as further explained below.
Head of Household Filers
Head of Household filers who have an adjusted gross income of $112,500 or less will receive the full $1,400 for themselves. There is a phase-out, however, for Head of Household filers who reach $120,000 in adjusted gross income. Head of Household filers are also entitled to additional sums for qualifying dependents, as set forth below.
In addition to these funds, eligible dependents of any age will receive an additional $1,400 per eligible dependent. The dependents can be any age, which is different than previous rounds of stimulus funds, and the funds are given to the party who claims the dependents on the relevant year’s tax returns which are utilized to determine the stimulus funds awarded. (See Section 6428B. of H.R. 1319, the “American Rescue Plan Act of 2021”.)
What Tax Year is Used for Determining the Third Round of Stimulus Checks?
The individual federal tax filing deadline has been extended this year from April 15, 2021, to May 17, 2021. This means that clients do not have to file their 2020 Federal Tax Returns until May 17, 2021, and depending upon their 2019 income and who claimed the relevant dependents in 2019 and 2020, some clients may want to wait to file, while others may want to rush to file.
The stimulus funds are determined based upon the 2019 tax returns filed by each party unless they have already filed a 2020 tax return. So, if someone earned less money in 2019, wherein they were eligible for stimulus funds, and now they aren’t, they may want to wait to file until May 17, 2021, in hopes of receiving their stimulus check in the meantime. As it stands right now, the money received from stimulus checks will not have to be repaid, and even if someone earned more money in 2020 (where they wouldn’t qualify for a stimulus check based upon their 2020 tax filings but would when based off of their 2019 tax filings) they can still qualify for a stimulus check payment based upon their 2019 tax filings. This only can happen so long as the 2020 taxes were not yet filed.
Additionally, the exact opposite is true and may be more applicable to many clients. If someone had a banner earnings year in 2019, but in 2020, their income plummeted, they may be eligible for a stimulus payment in the third round of stimulus payments, where they would not have been for the first two rounds of stimulus payments. For those clients, they want to file as soon as possible, to try and obtain a third stimulus payment, since the stimulus check could be based off of their 2020 tax returns instead of 2019 tax returns, as long as the timing aligns.
Who Receives the Dependency Stimulus Check?
In short, the tax returns used to determine the amount of the stimulus check will also control who receives the dependent stimulus monies. So, for example, if Spouse A files in 2019 and claims the minor children, and then 2020 would be Spouse B’s turn to file and claim the children, you will have Spouse A hoping Spouse B doesn’t file 2020 in time to receive the stimulus funds for the minor children. On the contrary, you will have Spouse B rushing to file for 2020 (so long as their income qualifies) so that they can receive the dependent stimulus funds during the third round of checks. We also may see arguments where Spouse A would qualify for a stimulus check with dependents, but Spouse B would not. In that scenario, Spouse A may want to ask Spouse B to wait as long as possible to file for 2020 taxes, because there is more of an opportunity for Spouse A to receive stimulus monies for the minor children whereas Spouse B wouldn’t, regardless.
To take this a step further, many parties argue over who should receive the dependent stimulus funds, regardless of who claimed the minor children on their taxes in any given year. Some parties go so far as to file motions regarding this issue. Most parents who have the majority of parenting time believe that they should be the ones who receive the stimulus funds for the dependents, no matter who claimed the minor children on their taxes in any given tax year. Some Judges have been inclined to award whatever the amount is that is allocated to the dependent, or a portion thereof, to the majority time parent, while some Judges have left it in the hands of the filer. In many scenarios, it is not cost-effective for a party to file to ask for the child(ren)’s portion of the stimulus check.
The 2021 Child Tax Credit
This matter is only going to become more complicated as 2021 continues on. As part of the “American Rescue Plan Act of 2021”, families with dependent children are supposed to be receiving an advance on half of their 2021 Child Tax Credit, which will be determined based upon their 2020 Income Tax Returns. This means that the parent who claims the minor child(ren) on their 2020 Federal Income Tax Returns will seemingly also receive half of the 2021 Child Tax Credit, in advance, in monthly payments, from approximately July 2020 through December 2020. The remaining half of the 2021 Child Tax Credit is anticipated to be received when the parties’ 2021 income tax refund is received. This is going to create a headache for family law practitioners, particularly in cases where parties alternate years of claiming the minor children on tax returns. (In situations where each party claims an even amount of children each year, it wouldn’t matter, but for families where each parent takes a turn claiming all of the children, or where there are an uneven amount of children, there may be some issues to anticipate.)
In 2019, the Child Tax Credit was $2000 per qualifying child dependent. This has been increased to up to $3,600 per qualifying child, but there is a phase out based upon income, just like stimulus checks. Because it is anticipated that half of the Child Tax Credit will be paid during calendar year 2021 to the person who claimed the minor child(ren) on their 2020 tax returns (but technically as a 2021 tax year benefit), and the remaining half will be paid to the person who claims the minor children on their 2021 tax returns, we as practitioners can anticipate many arguments about who should receive the July through December of 2021 payments (which are technically an “advance” on the 2021 tax filing refund). For parties who switch off years claiming their children, this will likely become an issue. (For more information, See Section 9611 and 9612 of H.R. 1319, “American Rescue Plan Act of 2021”.)
Jessica C. Marshall is a Partner at the law office of Anderson & Boback LLC.
Disclaimer: The information in this publication does not contain tax advice and is for informational purposes only. For more information on the “American Rescue Plan Act of 2021”, see the full contents of the bill. Further, this information is ever-changing as we learn more about how the “American Recuse Plan Act of 2021” will be implemented.