Seventh round of IRS Economic Impact Payments commenced last week
The IRS has commenced disbursing the seventh round of pandemic-related government payments referred to as Economic Impact Payments. This payment represents the third Economic Impact payment, ‘EIP3’, also referred to as an economic stimulus payment-payments being issued by the US government in response to the COVID-19 pandemic. The third payment, EIP3, was announced on March 12, 2021 under the American Rescue Plan.
As with the first two payments, the third payment is based on a taxpayer’s Adjusted Gross Income (‘AGI’) reported on the 2019 or 2020 individual income tax return. The prior two economic impact payments, ‘EIP1’ and ‘EIP2’, were issued during 2020 under the Cares Act and subsequently modified by the TRA Act of 2020.
Eligibility
US citizens and residents are eligible for these payments regardless of where they reside in the world. However this is subject to the AGI limitations discussed below, and the possession of a Social Security Number (SSN) valid for employment.
Persons who are non-resident aliens, or who can be claimed as a dependent on another person’s US income tax return do not qualify. Neither do estates and trusts. However, the payments are available on deceased estates where the decedent passed away during 2020, or in the case of a married couple filing jointly, both taxpayer and spouse passed during 2020.
The IRS advises that payments received by an estate for a decedent who passed away prior to 1 January 2020 need to be returned to the IRS.
The amount of the EIP3 for qualifying individuals is $1,400 per person – filer, spouse, and dependents[1] including all dependents claimed on the US tax return. This latest payment is higher and with wider eligibility than the previous payments (EIP1 and EIP2). EIP3 will be issued for all dependents, and not just for children under age 17 as was the case for prior stimulus payments.
Claiming the credit
Most qualifying individuals do not need to do anything as the IRS will automatically calculate the amount payable and direct credit to the taxpayer’s bank account (if one is held with a US bank), or else send the cheque by post. In some cases, a debit card is issued to the taxpayer. The IRS advises that subsequent pay-outs will not result in a top up to a debit card.
Taxpayers who did not receive either EIP1 or EIP2 may be eligible to claim what is known as the Recovery Rebate Credit on their 2020 US federal income tax return. A Social Security Number valid for employment is required, and persons with Individual Taxpayer Identification Numbers don’t qualify.
The difference between the EIP and the Recovery Rebate Credit is that the 2020 EIP 1 & EIP 2 were based on the AGI on the taxpayer’s 2018 or 2019 US tax return, but the RRC is based on the taxpayer’s 2020 AGI.
Thresholds
This latest round of payments has different income thresholds to the previous payment thresholds. Persons with income of more than $75,000 (single filers) or $150,000 (joint filers) will not receive the entire amount of the payment due to AGI in excess the threshold amount. Persons with income of more than $80,000 (single filers) or $160,000 (joint filers) will not receive a payment at all due to complete phase-out.
Thresholds for the previous EIPs also varied under the CARES Act with the eligibility amount capped at $198,000 for joint filers, $99,000 for single filers, and $174,000 joint filers, $87,000 single filers under the TRA 2020 Act.
To summarize, see the chart following:
| 2020 Cares Act | 2020 TRA 2020 | 2021 American Rescue Plan Act | |||
| Filing Status | Threshold Amount[2] | Rebate Phased Out[3] | Rebate Phased Out[4] | Threshold Amount[5] | Rebate Phased Out[6] |
| Married Filing Joint | $150,000 | $198,000 | $174,000 | $150,000 | $160,000 |
| Head of Household | $112,500 | $146,500 | $124,000 | $112,500 | $120,000 |
| All other filing statuses | $75,000 | $99,000 | $87,000 | $75,000 | $80,000 |
None of these payments are taxable in the US in the hands of the recipient.
The IRS cannot apply the credit to currently owed or past due taxes, pursuant to recent lobbying triggered by the IRS taking the credit to a taxpayer’s unpaid past due taxes and not actioning the refund to the taxpayer. As a result, legislation has been changed to ensure the IRS does not take the payment and apply it to past due taxes.
These Economic Impact Payments are only a minor part of comprehensive US legislative changes providing tax relief due to the COVID-19 pandemic.
Did not receive EIP1 and/or EIP2?
- Check the Get my Payment tool on the IRS website Get My Payment | Internal Revenue Service (irs.gov)
- If not issued yet you qualify for the payment you can claim the 2020 Recovery Rebate Credit on your US tax return. Through the return preparation process you will be asked whether you received EIP1 and/or EIP2, and you may receive the Recovery Rebate Credit based on your 2020 AGI.
[1] In accordance with US tax rules a dependent is subject to eligibility criteria in which he/she may qualify to be claimed on the US individual income tax return.
[2] The amount over Adjusted Gross Income at which the payment begins to abate.
[3] The amount of Adjusted Gross Income is fully abated.
[4] The amount over Adjusted Gross Income at which the payment is fully abated.
[5] The amount over Adjusted Gross Income at which the payment begins to abate.
[6] The amount of Adjusted Gross Income at which the payment is fully abated.
