The third stimulus check comes with a $1,400-per-person maximum. To “target” or restrict the third check to lower- and middle-income households, the legislation is likely to include eligibility rules that exclude individuals and families at the highest income levels. An individual with an AGI (adjusted gross income) of at least $80,000 a year would hit the payment cutoff, as would a head of household earning $120,000 and a couple filing jointly with an AGI of $160,000.
However, any dependent a taxpayer claims could qualify for a $1,400 payment. But unlike the first two stimulus payments, people above the hard upper limit wouldn’t be able to get a partial check by having dependents. Here’s how the stimulus check formula would work. If you want to see for yourself, try our stimulus calculator for the third check.
STIMULUS CHECK INCOME LIMITS (MARCH 6 VERSION)
|Full $1,400 per person maximum (based on AGI)||Not eligible (based on AGI)|
|Single taxpayer||Less than $75,000||$80,000 or more|
|Head of household||Less than $112,500||$120,000 or more|
|Married couple filing jointly||Less than $150,000||$160,000 or more|
More dependents could get a stimlulus check this time
The new stimulus bill would open the qualifications to roughly 13.5 million more dependents for a third stimulus payment — for $1,400 apiece — than the first two payments did by expanding the definition of a dependent. With the new check, any dependent — child or adult — would count toward a payment. With the first check and the second, Congress included children age 16 and under but excluded dependents 17 and older.
Who would not qualify for check?
With the new upper income limits the Senate agreed to on Saturday, more than 16 million people who would have qualified for the third check under the House plan would be excluded with the Senate bill, according to the the Institute on Taxaxtion and Economic Policy, a left-leaning think tank. There are also several ways you could get less stimulus check money than the total approved by Congress. We explore that here, including changes in your personal life that may have an effect, such as if you got a raise in the past year or if you claim fewer dependents this time around. Here’s who might not qualify for a new stimulus check.
What could delay the third payment?
Outside of Congress, the IRS has a full plate now that we’re in the middle of tax season, with an April 15 deadline for taxpayers to submit their returns. It can take months for the IRS to process the payments, even without being stretched thin because of the ongoing pandemic, a backlog from 2019’s taxes and the job of processing another round of stimulus payments — using a new formula — for more than 100 million households. Here’s what to know about stimulus checks and taxes. Read more below for which tax year the IRS will use for you.
Will the IRS use my 2019 or 2020 taxes to calculate my stimulus payment?
Tax season and the timing of a third stimulus check will most likely overlap. What that means is that the IRS will likely base your total on income from either your 2020 or 2019 tax return, whichever it has on hand when it determines the size of your payment. If you qualify for the full $1,400 based on your 2020 taxes, but your check was lower because the IRS based it on your 2019 taxes, you’d have to claim the difference when you file in 2022.
How long will the IRS have to send my payment?
The IRS and the Department of the Treasury took just days to deliver the second stimulus checks, starting shortly after former President Donald Trump signed December’s stimulus bill. They had no choice: The language of the bill provided only a 17-day window to send the checks. There were millions of direct deposit errors, and now anyone missing stimulus money will have to claim it as part of filing their 2020 taxes. (Yes, even people who don’t otherwise file taxes.)
The IRS would have until Dec. 31, 2021 to automatically send a third check to recipients, with taxpayers and non-filers alike claiming any missing money as a Recovery Rebate Credit or something like it, in 2022. Here are more possible scenarios for the third stimulus check timeline here.
Here is the gist of the CARES ACT.
To qualify you must have at least $2500 in income either earned or benefits other than SSI.
IT WILL NOT BE TAXABLE. However you may be asked if you got it same like the last stimulus.
If you are single no dependents and made $75k or less you will receive the full stimulus amount $1200, and it will not be taxable
If you file married and made up to $150k or less, less you will receive the full stimulus amount $2400 plus $500 for you children or disabled dependents
If you are a Head of Household (single but with children or dependents) and made up to $112k or less, you will get full stimulus amount $1200 plus $500 for each dependent.
I am not sure if those who qualify as head of household with a qualifying child who is not your dependent will qualify as single or hoh. (example : you are single but have a child you pay support for but doesn’t live with you but you still use that dependent to file as head of household). But I assume that they will base it only on filing status.
If you receive social security retirement, social security disability, or veterans administration benefits you will auto qualify and stimulus will deposit same as benefits.
If you recieve Social Security Supplemental, you will NOT be part of package. Do not let anyone tell you to file return. Remember that your SSI will be deducted dollar per dollar.
After a week of Congress members and the Trump administration proposing various plans to get cash into the hands of Americans to help them weather the coronavirus crisis, the Senate appears to have landed on a plan. While details are still being negotiated, it appears likely that what changes to the cash measures will be made will change how the cash is delivered, not how much and to whom.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, or the “phase three” coronavirus bill, includes, as of now, cash measures totaling $301 billion per the conservative Tax Foundation, the only think tank that has modeled the exact proposal as of this writing.
The plan’s provisions are very simple. Adults would get $1,200 each and children $500 each. At higher incomes, the checks would get smaller: The benefit would start decreasing at a rate of $5 for every additional $100 in income. The phaseout starts at $75,000 in adjusted gross income for singles, $112,500 for heads of household, and $150,000 for married couples filing jointly; it would phase out entirely by $99,000 for singles and $198,000 for couples (with no children).
For example, a single childless person with an AGI of $85,000 would get $700 because $500 of the benefit was phased out by their higher income.
Unlike some early Senate Republican proposals, there is no minimum income (which would’ve excluded very poor people), and the check amounts don’t “phase in,” so the middle class doesn’t get more than the poor.
Here is how that policy looks in graph form:
The phase-out for top earners will be done using 2019 tax returns or 2018 returns if the taxpayer in question hasn’t filed their 2019 taxes yet. The bill says that taxpayers relying on Social Security as part of retirement or through the Social Security Disability Insurance program can have their Social Security Administration data used directly; beneficiaries of Supplemental Security Income, which often benefits old or disabled people in poverty, are not included in the current version.
Here is how that policy looks in graph form:
No. 1: Mortgage and home loan interest
Let’s start with the deduction for mortgage interest, which allows you to deduct much or all of the interest you pay on your home loan. For many people, this can amount to more than $10,000 annually. The rules changed with the 2017 tax reform legislation, so here’s the latest:
The maximum mortgage size for an allowable deduction is now $750,000, down from $1 million, for loans taken out prior to Dec. 16, 2017.
Home-equity loan interest is now only deductible if you used the loan to buy, build, or improve your primary or secondary home. If the money went to pay off credit card debt or to buy a new car, you’re out of luck.
No. 2: State and local taxes
Up until the 2017 tax year, you could deduct the state and local taxes you paid on your property plus the state and local taxes you paid on either your income or your property during the tax year. All together, it could add up to a hefty sum.
The rules have changed, though, and now your total state-and-local-tax deduction is capped at $10,000. That’s a big bummer for those with high-priced properties and/or outsized incomes or spending habits, but other folks will find the deduction welcome, whether it’s $1,000 or $10,000.
This deduction does require a bit of work, though, as you (or your tax preparer) will need to determine whether you’ll save more by deducting your state and local income or sales taxes paid. The IRS offers a handy calculator to help.
No. 3: Retirement account contributions
Next up are retirement accounts such as IRAs and 401(k)s, both of which come in traditional and Roth forms. They provide valuable tax breaks, but they’re also important just because they can help us build critical nest eggs for retirement.
Traditional IRAs and 401(k)s accept pre-tax contributions — and give you an up-front tax break, allowing you to deduct the amount contributed, thereby shrinking your taxable income. And the maximum contributions allowed can be rather generous: For the 2019 tax year, you can contribute up to $6,000 to an IRA (or a total of up to $6,000 can be divided among multiple accounts), plus an extra $1,000 for those 50 and older. With 401(k) accounts, in 2019, you can sock away up to $19,000, plus $6,000 for those 50 and older.
No. 5: Contributions to health savings accounts
A health savings account (HSA) is a great way to save on healthcare expenses — and it can even serve as a retirement savings account, too. As with a traditional 401(k), you contribute money to it on a pre-tax basis via your employer. Then you can spend that money on qualifying healthcare expenses, such as prescription drugs, doctor visits, lab work, dental care, braces, surgeries, and more. The money not spent can accumulate in the account — there’s no use-it-or-lose-it condition, as there is with flexible spending accounts (FSAs). Best of all, once you turn 65, any money in the account can be used for any purpose at all — you just have to treat withdrawals as taxable income.
Note that you’ll need to have a qualifying high-deductible health insurance plan if you want to fund an HSA. For 2019, the HSA contribution limit is $3,500 for individuals and $7,000 for families, with those 55 or older able to chip in an additional $1,000.
No. 6: Charitable contributions
Finally, deductions are allowed for charitable contributions, and if you’re very generous, Uncle Sam will be generous, too. You can deduct contributions made to qualifying organizations only, and you’ll need to keep receipts or acknowledgments from them for your tax records. (If the IRS questions any contribution, you’ll need to prove it.)
You can also get a deduction by donating goods, such as clothes you no longer want or furniture you’re replacing. Look up the fair market value of items you donate online, perhaps by using Google to look up “donation value guide.” If you do some driving for charity, such as delivering meals to homebound people, you may be able to take a deduction for your mileage. The rate for that in 2019 is $0.14 per mile.
The six deductions above are major ones, but there are lots of other tax deductionsyou could be able to take, some of them substantial. Do yourself a favor and learn more about them to see how much money you might be able to keep in your pocket.
No. 4: Home-office expenses
Next, if you toil from home much or all of the time, you might be able to deduct a bunch of home-office expenses. There are rules and restrictions, though, of course:
The office must be used solely for business. You can’t count the family den in which you have a desk in the corner.
The room(s) must also be your principal place of business or where you meet customers regularly. This means that if you work elsewhere most of the time, such as at your employer’s offices, and work from home for that job for a day or two per week, the office won’t qualify. (It could qualify if you have a part-time business that you work on solely from that room, though.)
You need to figure out what percentage of your home your office takes up. You can do this by determining the office’s square footage and dividing it by the home’s total square footage. Or, if your rooms are all roughly similar in size, you might just divide the number of rooms the office takes up by the total number of rooms in the house.
Deductible expenses include electricity, heat, property taxes, home insurance, security expenses, homeowner association fees, repairs, maintenance, and more. As an example, if your home insurance costs $1,500 and your office takes up 10% of the house, you’d deduct 10% of $1,500, or $150. Spend $10,000 for air conditioning for your house? You might be able to deduct $1,000
Is Your ‘Business’ Just a Hobby?
Is Your Business Just A Hobby
The difference between businesses and hobbies is that you have to prove that your hobby is a business by passing not one but nine tests. It matters because the outcome of the hobby-business tests can have rather serious tax implications.
In a nutshell, the difference between a business and a hobby comes down to how expenses/losses are treated. Business expenses and losses are fully deductible, while the expenses related to a hobby are only deductible up to the amount of any income you earned from your hobby.
Much of the confusion for taxpayers occurs when they classify their hobby as a small business because it generates some income. The IRS definition of a hobby is not entirely helpful, since it classifies a hobby as an activity that you engage in “for sport or recreation, not to make a profit.”
For example, a person who restores classic cars and sells them for a profit should be considered a business, right? Not necessarily. Someone who restores one or two cars a year can be considered a business. On the other hand, someone else restoring and selling six cars a year could still be considered a hobbyist.
The point is, as crazy as that sounds, the difference between a hobby and business is not a matter of volume. It’s all about intent. The following questions, or tests, can help you make the distinction between a hobby and a business:
- The manner in which the taxpayer carried on the activity.
Are you keeping accurate books and using them to improve your performance?
- The expertise of the taxpayer or his or her advisers.
Are you seeking professional guidance to improve your business practices?
- The time and effort expended by the taxpayer in carrying on the activity.
Are you investing enough time to make the business successful?
- The expectation that the assets used in the activity may appreciate in value.
Are you planning to generate a profit from the appreciation of assets?
- The success of the taxpayer in carrying on other similar or dissimilar activities.
Have you gone from being unprofitable to profitable in similar activities?
- The taxpayer’s history of income or loss with respect to the activity.
Have you been profitable in at least three of the past five years for most businesses?
- The amount of occasional profits, if any, which are earned.
Even a small profit earned every year provides strong evidence of a business rather than a hobby.
- The financial status of the taxpayer.
Do you have other sources of income that are being offset by the activity?
- Elements of personal pleasure or recreation.
Does the activity have significant personal elements (indicates a hobby)?
Remember our two auto restorers. The guy who did just two cars a year consistently made a profit from the cars he restored and kept detailed records of what he spent on parts and tools. He paid careful attention to the classic-car market and chose only to restore cars that he knew were in demand.
The restorer who did six cars a year could only estimate his costs and only spent about two weekends a month working on projects. Most years he lost money largely because he chose to restore cars that he found interesting. Many of the cars he restored didn’t appreciate in value year over year even when fully restored.
Deducting Hobby Expenses
If it turns out that what you thought was a side business is really a hobby that generates income but not a profit, you can still deduct some or all of your expenses, which means there’s a good chance you won’t owe taxes on the income you earn.
In order to deduct hobby expenses, you must itemize your deductions (complete a Schedule A). The IRS has three categories of expenses that you can deduct, and they must be used in order and only to the maximum allowed by each.
- Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
- Deductions that don’t result in an adjustment to basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
- Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
The Bottom Line
The IRS’s enforcement of hobby loss rules means that if you truly are operating a side business, you need to treat it like a business, and be prepared to prove your claim to an IRS representative. Perhaps the surest way to have even a legitimate business — one that meets eight of the nine criteria for a business — considered a hobby is to have consistent losses year after year. The IRS views this as the biggest indicator that a business is actually just a hobby.