Coronavirus Stimulus Payments and US Tax Filing in 2021

Coronavirus Stimulus Payments and US Tax Filing in 2021

Back in March 2020, the CARES Act mandated a one-off stimulus payment for American individuals to help offset the economic impact of the Coronavirus pandemic.

Stimulus payments were worth a maximum of $1,200 per American citizen (so $2,400 for couples filing jointly if both are Americans), and $500 per dependent child.

A second stimulus check was then mandated at the end of December 2020.

All American expats whose worldwide income meets IRS minimum income thresholds have to file US taxes, including those who file foreign taxes in the country where they reside.

As American taxpayers, expats qualify for stimulus checks too.

Two important points to note for American expats are that those married filing jointly with a foreigner aren’t eligible for a stimulus check, and, also, expats who claim the Foreign Earned Income Exclusion when they file (the FEIE is, along with the Foreign Tax Credit, one of the ways expats can reduce their US tax bill, most often to zero) may be able to earn over $99,000 and still receive a stimulus check, as claiming the FEIE reduces their adjusted gross income.

While the IRS looked at 2018 and 2019 tax returns to determine who would receive Coronavirus stimulus checks, the payments are actually an advanced tax credit for 2020.

Stimulus checks and US tax filing in 2021

A new line has been included on the new 2020 draft Form 1040 for the Recovery Rebate Credit (the official name for stimulus checks).

“Even without another Coronavirus relief package, some Americans may receive another economic impact payment in 2021.” – Newsweek

As the value of stimulus payments was calculated using previous years tax returns, some Americans didn’t qualify in previous years, but can evaluate again based on their income in 2020 (if they earned less income in 2020 than in previous years for example, or if they claimed the Foreign Earned Income Exclusion instead of the Foreign Tax Credit in 2020 to reduce their adjusted gross income and qualify). These expats will therefore receive a stimulus payment in 2021.

Conversely, some Americans qualified and received a payment based on their 2018 or 2019 tax return, but won’t qualify based on their 2020 income. Thankfully though, these folks won’t have to refund the stimulus payment they have already received.

Who else could get a late stimulus check in 2021?

There are several other scenarios in which expats might receive a late stimulus check in 2021:

– Americans who don’t file a tax return as they don’t meet minimum income thresholds and who didn’t let the IRS know using the online non-filers tool by midnight on October 15th 2020.

– Americans who were claimed as a dependent on someone else’s 2019 tax return, but file their own return for 2020.

– Americans abroad who received a paper stimulus check that they can’t pay into a foreign bank should return the voided check and they will receive a credit on their 2020 tax return in 2021.

– American expats who are behind with their US tax filing because they weren’t aware that they had to file, but now catch up under the voluntary IRS penalty-free Streamlined Procedure amnesty program.

Will there be a second Stimulus Payment in 2021?

After debating a second stimulus check since July, Congress finally agreed one in December 2020.

Seek advice

Every person’s situation has unique characteristics, however the vast majority of Americans residing abroad benefit from personalized advice to ensure that their US tax filing strategy best fits their individual requirements.

Register now, and your Bright!Tax CPA will be in touch right away to guide you through the next steps.

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