Many taxpayers are dealing with new filing complications brought on by the disbursement of stimulus checks last year and the growing likelihood of another one within weeks.
As the April 15 deadline looms, millions of cash-strapped consumers are still awaiting relief payments, but must account for them on their tax returns. The vast majority of taxpayers who already received the first two relief rounds face other concerns, including the ramifications of filing earlier or later, and utilizing the best strategies to maximize the next stimulus check.
“Choosing the best time to file is important to get the full amount that you can," says Jacob Dayan, chief executive and co-founder of Chicago-based Community Tax, which provides tax resolution, assurance, and preparation services for individuals and small businesses nationwide.
When to file early, when to file late
Another round of stimulus checks is a key component of the Biden administration's proposed $1.9 trillion coronavirus relief bill, which the Democratic-held Congress aims to approve by mid-March.
The timing of one's tax return could affect the amount of stimulus money received this year, warns certified public accountant Tim Yoder, a sole proprietor in Omaha, Neb., and tax analyst for New York City-based affiliate marketer Fit Small Business.
“This is because the 2021 payment will be based on your most recently filed return," he asserts.
To maximize stimulus payments this year, he recommends taxpayers file a 2020 return as soon as possible if their 2020 income is substantially lower than 2019, or if they claimed more dependents in 2020 than the previous year.
His sentiments are shared by other experts in the field, including Matt Hylland.
“If your 2020 income was significantly lower than your 2019 income, it may be worth filing as early as possible to ensure your stimulus payment, if it is passed, is based on your lower 2020 income amount," explains Hylland, a financial planner at Hiawatha, Iowa-based Arnold and Mote Wealth Management, which primarily caters to local retirees and those nearing retirement.
To determine the best time to file, consider any life changes made last year, Dayan adds.
“If you had a kid, got married, or have reduced income due to the pandemic, then filing early may be beneficial," he says. “These changes can amount to a larger stimulus check."
Eligibility tied to filing
For taxpayers still awaiting stimulus checks, there's little recourse regarding monetary relief if they miss the tax filing deadline.
Filing is directly tied to stimulus disbursements, explains Donna Tang, a budgeting and finance expert at CreditDonkey in Pasadena, Calif.
“Now that the tax filing season is here, you are required to file your taxes in order to receive the second stimulus check and be eligible for a third check," she confirms.
Rebate credits available for some
Those who haven't received full stimulus benefits can apply for a Recovery Rebate Credit on Form 1040 on their 2020 federal tax returns, according to Colorado tax specialist Kari Brummond.
She highlights a key caveat for full eligibility: Adjusted gross income last year must be below $75,000 for single filers and $150,000 for joint filers.
“To claim this credit, you need to note the amount of the payment you received so that the government can determine how much it owes you," adds Brummond, a tax preparer at Trumbull, Conn.-based TaxDebtHelp. “Unfortunately, you cannot use your 2018 or 2019 income to qualify for the Recovery Rebate Credit. This is solely based on your 2020 income."