Stimulus Payment: Who is Eligible for this Tax-Free Check?

The IRS expects to start distributing the stimulus payments to eligible low to middle-income Americans in the next three weeks. Millions of Americans have started receiving their stimulus payments this week. The stimulus checks will be distributed automatically to the majority of taxpayers who qualify. This includes Americans who receive Social Security benefits or have filed a 2018 or 2019 tax return. If you were required to file a 2018 or 2019 tax return and haven’t, you should file one as soon as possible.

This means millions of Americans will not need to do anything to receive their stimulus payment deposited directly into their bank account, because the IRS will use the information it already has on file. Some Americans, who typically are not required to file a tax return, will need to file a simple tax return to qualify. You can check the status of your stimulus payment on the IRS.gov website here.

Who is Eligible for the Stimulus Payments?

The majority of low to middle-income Americans will qualify for this refundable credit. To be eligible to receive the stimulus check, you must:

  1. Have a Social Security Number;
  2. Make below the adjusted gross income threshold; and
  3. Not be claimed as a dependent by someone else.

Social Security Number. This means nonresident aliens and undocumented immigrants are not eligible to receive the stimulus payments. People, who have Taxpayer Identification Numbers (TINs), will not qualify. Only people who have Social Security Numbers qualify.

Income Threshold. To be eligible, taxpayers must make below the adjusted gross income thresholds to qualify. The maximum amount a person will qualify for is $1,200. The IRS will use the adjusted gross income reported on your 2019 tax return. If you haven’t filed your 2019 tax return, the IRS will use the amount reported on your 2018 tax return. If you haven’t filed your 2018 or 2019 tax return and are required to file either year, you should file it immediately. If you were not required to file a 2018 or 2019 tax return, you may need to submit a simple tax return that the IRS will use to determine your eligibility.

The adjusted gross income thresholds depend on your filing status. If you make below the following amounts, adjusted for your filing status, you will qualify for the full $1,200 stimulus payment, if you meet the other requirements:

  • Single filers - $75,000;
  • Married Filing Jointly filers - $150,000; and
  • Head-of-Household filers - $112,500.

For every $100 dollars taxpayers make above the threshold, their stimulus payment will be reduced by $5 (or 5%). This means for Americans, who’s adjusted gross income is above the following limits, will not qualify for a stimulus check:

  • Single filers - $99,000;
  • Married Filing Jointly filers - $198,000; and
  • Head-of-Household filers - $136,500.

Dependents. For eligible taxpayers, who claim a 16 year-old or younger dependent on their tax return, will qualify for an additional $500 stimulus payment per dependent. Adult dependents, people age 17 and older, who are claimed on someone’s tax return, will not qualify for a stimulus check.

Example. Bob and Anne filed their 2019 tax return as married filing jointly and claimed their 14-year-old daughter and 20-year-old son, who is a junior in college. Their adjusted gross income reported on their 2019 tax return was $125,000.

Based on their 2019 tax return, Bob and Anne would qualify for a stimulus payment of $2,900, calculated as $1,200 each plus $500 for their daughter ($1,200 + $1,200 + $500 = $2,900). They would not qualify for an additional $500 for their son because he is over 16 years old. Their son would not qualify for a stimulus payment either, because he was claimed as a dependent on his parents’ tax return.

Are the Stimulus Payments Really Tax-Free for Everyone?

Everyone that qualifies for the stimulus payment, a refundable credit, formally known as a “recovery rebate,” will not owe taxes on the money they receive. Because it is a tax credit and not a refund, this means the stimulus payments will be tax free. Although taxpayers more than likely will need to report the payment on their 2020 tax return next year to ensure it is correct, they will not have to pay taxes on the amount received.

The Bottom Line

The majority of Americans will qualify for the stimulus payment of $1,200 and an additional $500 for dependents they claim, who are age 16-years-old and younger. Adult dependents, age 17-years-old and older, who are claimed on someone else’s tax return, will not qualify for a stimulus check. Also, Americans, who make over the income thresholds, will not qualify. Some taxpayers that normally do not have to file a tax return will need to file a simple tax return for the IRS to determine they qualify. If you have filed your 2018 or 2019 tax return or receive Social Security benefits, the IRS will use the information they have on file.

If you are not sure if you should file a 2018 or 2019 tax return or need to file a simple tax return to qualify for the stimulus payment, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group. They will review your individual tax situation and determine what you need to do to receive your stimulus payment.

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