Stimulus payments – round three
Three rounds of IRS stimulus payments (aka Recovery Rebate Credits or Economic Impact Payments) have been paid out to qualifying taxpayers, consisting of maximum awards of $1,200; $600; and $1,400 for rounds 1, 2, and 3, respectively. Taxpayers qualified by reporting income below certain thresholds, as shown on their 2020 tax returns. Beyond those thresholds, the payments would be phased out (reduced, or even eliminated). However, because the first two payments were issued during 2020 (before the year ended), the payments had to be based on the IRS’ estimates of 2020 income, using the most recent returns at its disposal for each taxpayer (2019 for some, 2018 for others). A true-up was conducted as part of finalizing each 2020 tax return, wherein taxpayers who received too small of an amount for rounds 1 or 2 would benefit from the difference at that time, via an increased refund or a reduced amount due to the IRS. But those who had received what the true-up suggested was too high of an amount were not required to return the excess, directly or indirectly. In other words, the only true-up adjustments that were enforced were ones that worked in the taxpayer’s favor (thus creating the first instance a taxpayer could tell the IRS “heads I win, tails you lose!”).
Stimulus payments 3 function much like 1 and 2, but were distributed in 2021, and will be trued up using 2021 Forms 1040. The amounts were estimated based on 2020 or 2019 returns (whichever were the most recent ones filed and processed by the IRS), and any true-up adjustments again will only work in the taxpayer’s favor. Fewer people received the third payments because the income thresholds were lower than those used in the first and second iterations.
More information regarding the third stimulus payment is found in FAQs on the IRS website.