The “American Rescue Plan” has been finalized. And there are things about the new stimulus update our Minnesota clients should know.
While I normally write weekly, there is information in this strategy note that you need to know about now that might even impact how you proceed in the following days.
As of this writing, Congress has agreed — but this is so fresh off the presses that many of my industry colleagues are scrambling, and the research services are still compiling all the data. But I felt it important to get ahead of all of that on your behalf.
If you know anyone in Hennepin County who needs assistance, we are tracking all of this for our clients and are taking on new clients even now. Feel free to send people our way, and have them use this to get in touch:
There is a lot to discuss about the new stimulus update, and I will have more to say early next week, but this is important for you to know about NOW. So let’s dive in…
(and how they might impact your tax paperwork)
These are different from previous stimulus programs: $1,400 dollars per taxpayer and dependent (with significant income limitations).
1) Previously, if you had a child over 16, or an adult dependent, they would not qualify. In this round, you’ll receive a payment for yourself and each dependent — depending on your income.
2) The “phase out” for this is significant and steep. What this means is that in previous rounds, the phase out was much more gradual. The phase out began at the same numbers (75K for individual, 150K for joint-filed return, and 112,500 for HOH), but they were so gradual that it didn’t significantly impact filing decisions.
Now — you will NOT receive these payments if your income is anything over 80K for individuals or 160K for joint.
How This Might Impact ~ProfileMarketArea~ Taxpayers NOW (Tax Planning)
We want to get you the most out of the new stimulus update as we can. And once the IRS issues you a stimulus payment, it’s yours. TIMING matters, and so might how you file (in certain unusual cases).
If your 2020 income increased versus 2019 …
- If it didn’t take you over the phase out thresholds, there is nothing needed for you to think about.
- If it brought your AGI above the phaseout thresholds (especially if over the 75K or 160K joint), and you have not filed your return: we will be waiting to file it until after you receive your stimulus.
If for some strange reason you are reading this and you are NOT our client, I urge you NOT to file until you receive payment.
- If your increase brought your AGI above these thresholds, and you have already filed … I am sorry 🙁 The IRS goes by the most recently-filed information for these decisions.
Congratulations on your income increase … and let’s work on other ways to reduce your tax obligations in the future.
If your 2020 income decreased versus 2019 …
- If your income was already under the phaseout thresholds, you will not be affected — you will receive the stimulus no matter what.
- If your income decreased below the thresholds (i.e. your income in 2019 was above 75K or 150K filing joint and now it is below), you do NOT have to rush to get your return in.
The new stimulus update has two phases for distributing payments. In phase 1, the IRS will take the data it already has and pay out of that. If you didn’t file a return in 2019 or 2020, you will not get a stimulus. But fret not … in phase 2, there will be a second date on which the IRS will calculate stimulus payments. This will be for those who had an income decrease. That date will be the earlier of 90 days after the tax deadline day (whatever it might be — more on that later), or September 1.
So as long as we get your taxes filed on time, you WILL get it. You do not have to FILE YOUR TAXES RIGHT NOW. Don’t let any scammy Minnesota tax pros or marketers tell you differently. Fortunately, this issue was (miraculously) considered within the text of the bill.
HOW YOU FILE:
In certain odd cases, it might actually make sense to file “married filing separately” for your 2020 taxes even though you will (as a result) pay slightly more in taxes — because by doing so, you will be able to receive a greater stimulus payment. It would then outweigh the greater tax you might pay.
This will not be the case for most of my clients, and it mostly will concern Hennepin County filers whose income hovers around the phaseout thresholds. If this is you, get in touch with us:
“When Will I Get My Stimulus?”
Unclear, but likely these will begin by the end of this month for those who already are under the thresholds and qualify.
For the rest, it will be after the second phase that I already mentioned.
Unemployment Now (Partially) Non-Taxable (for most)
I already mentioned in a recent post, and it has been confirmed in the the new stimulus update– the first 10,200 of unemployment benefits are untaxable — but only for those whose income is below 150K.
This is a very real benefit for many, probably meaning about 1,500 in savings. But the timing on this will take some time because the IRS will have to issue guidance.
If you know anyone in Minnesota who has unemployment who has already filed their return, it is likely that they might have to amend … but not necessarily. We are here to help if you want to make sure:
There are (obviously) many more elements to the new stimulus update, and I will unpack them in the following weeks.
There are changes to child tax credits, earned income credits, and more. Look out for my update next week on those items.
In the meantime … know that we are in your corner.
(And also, extend us grace as we are handling these matters for a variety of clients, many of whom have very difficult circumstances. We are here to serve, and have prepared for these kinds of legislative curveballs … but they are curveballs nonetheless.)
The Business Advisors