The problem with the long view is that you have to survive the short term to get to the long term – John Authers
Whether you celebrate Christmas or just New Year’s, the Holidays are coming early this year, and not a moment too soon!
Congress has finally agreed on the second stimulus bill. They’ve been fighting over the details of this stimulus since May. It’s a Holiday miracle!
Or is it?
After I had finished writing this newsletter, at 7 pm Eastern on Tuesday, having indicated earlier that he would sign the bill, President Trump announced in a video on Twitter that he would not do so and asked Congress for significant changes, including to increase the amount of the individual stimulus payments to $2,000 from the current $600.
This unexpected twist has an unclear outcome and caused me to have to re-word much of this newsletter seconds from publishing it.
What are we to do now?
Let me tell you what we will do:
This bill is 5,593 pages long. It does not just include the stimulus measures, but also the $1.4 trillion annual spending bill that it was paired to. Congress has been negotiating this stuff for months. Many, many months. This bill represents an enormous amount of effort by a lot of people over a long period of time. I can’t imagine they’ll want all this work to go to waste.
It is possible that President Trump will veto this bill, he has 10 days to do so. If he vetoes it, this Congress still has time to override his veto before it expires on January 3. Congress needs with two thirds of the vote by each chamber and make this bill the law of the land. The bill was passed with significantly more than two thirds of the vote in both chambers, so an override is possible.
If the President doesn’t veto or sign the bill, it becomes law in ten days.
So, let’s assume for now that this bill will become law.
What is in the current bill in terms of coronavirus stimulus?
- A second round of stimulus checks;
- Additional supplemental federal unemployment assistance;
- A new round of PPP loans;
- Better terms for PPP loan forgiveness;
- Grants for theaters and other live venues;
- Eviction protection and student loans extensions;
- Vaccine and hospital funding;
- A bunch of other stuff we won’ get into.
If the bill becomes law, we will discuss the different benefits in the coming weeks.
Today, we will focus on the benefit that I believe is of interest to most of you: the second round of individual stimulus payments, which may change in terms of amounts, but it’s unlikely to change in terms of eligibility criteria and other such details.
Here is what you need to know about the second round of coronavirus stimulus payments:
How much are these payments for?
Under the current bill, the payments are $600 per eligible adult and $600 per eligible qualifying dependent child under age 17. A family of four would therefore be eligible for a $2,400 payment. President Trump suggested increasing the payments to $2,000 per individual and $4,000 for a married couple. He made no mention regarding the payment amounts for dependent children.
Who is eligible?
US citizens and US residents with social security numbers. In the case of dependent children, they need to either live in the USA and have social security numbers, or, if living outside the USA, be US citizens with social security numbers.
Tip for US expats: if you had a child outside the USA and your child does not have an SSN, apply for the baby’s SSN’s to secure this payment. You have time until the due date of your 2020 tax return, including extensions, to obtain the SSN.
Note: if you are a US expat and your child is not a US citizen, unfortunately, your child is not eligible to receive this payment. If your spouse does not have an SSN, whether you live in the USA or abroad, your spouse is not eligible for the payment. Under the CARES Act, if one of the spouses was not eligible for the payment, both spouses were disqualified from receiving the payment. This new bill fixes this problem. The fact that one spouse in a married couple filing a joint return is not eligible does no longer disqualify the other spouse from collecting their own stimulus payment.
Who is not eligible?
Nonresident aliens, dependents of another US taxpayer who are age 17 or older, trusts and estates, individuals who died before January 1, 2020, US citizens without SSNs and non-citizen children of US citizens living outside the USA.
Note: ITINs are not eligible tax IDs for purposes of this stimulus payments. The foreign spouse of a US citizen who elects to be taxed as a US tax resident normally has an ITIN for a tax ID and would bot not eligible to receive this payment. If the foreign spouse, for whatever reason, has an SSN, the joint filing spouse would also be eligible for the payment.
Are US expats eligible?
Yes! As long as they have SSNs. Having an SSN is an eligibility requirement. Unfortunately, this requirement negatively impacts accidental Americans without SSNs who would otherwise be eligible for this relief.
Note: having a tax return filing obligation is NOT a requirement for eligibility. Eligible individuals with incomes below the income tax filing threshold are eligible for this payment as long as they have an SSN.
Are there any income limitations?
Yes. The payments start to phase out when the AGI is above $75,000 for single taxpayers, above $125,000 for heads of household and $150,000 for married couples filing a joint tax return. You can use this calculator published by Forbes to estimate your payment amount. Income thresholds are based on your 2019 AGI.
GOOD NEWS FOR US EXPATS WHO CLAIM THE FOREIGN EARNED INCOME EXCLUSION: the income threshold is measured by Adjusted Gross Income (AGI). The foreign earned income exclusion lowers AGI. US expats with incomes above the phaseout thresholds who claim the foreign earned income exclusion remain eligible for the stimulus payments at much higher income levels. For more information on how this works, you can refer to this earlier post where we explained the EIP FEIE loophole.
When can we expect to receive the payments?
Before President Trump threw a wrench into the works, the expectation was that he would sign the bill on Tuesday, and, according to Treasury Secretary Steven Mnuchin, this meant that the payments would be rolled out quickly, as early as next week.
Now….. who knows? Your guess is as good as mine!
How should we expect the payments?
The IRS will deposit your payments in your US bank account. If in the recent past you informed the IRS of a bank account for purposes of depositing a refund or withdrawing a tax balance, the IRS will use this bank account information.
If you provided your US bank information through the online tool provided by the IRS earlier this year for purpose of the payment of the first Economic Impact Payment, the IRS will use that bank account.
If your first EIP was deposited into a US bank account, the second payment will be deposited into the same account.
If you have not provided your US bank information to the IRS, the IRS will mail you a check. Checks are expected to take several weeks to be printed and mailed out.
What happens if you are eligible for the payment but don’t receive it?
Not to worry!
You will have a chance to remedy this situation when you file your 2020 tax return. You will be able to use a Recovery Rebate Credit form to calculate how much you are owed and claim your full or partial missing payments through your 2020 tax return.
Note: Eligible individuals without a tax return filing requirement can file a 2020 income tax return with the purpose of claiming their missing payments. Eligible individuals who obtained SSNs after the payments were distributed can also claim their missed payments through their 2020 tax returns. Eligible individuals who received the maximum payment amounts are not required to complete the Recovery Rebate Credit form.
Waiting to find out how this cliffhanger is resolved in the next episode. Exciting!
In the meantime, enjoy these socially distanced holidays as best as possible, and hope for better luck in 2021.
See you all on the other side.
Un abrazo y buena onda,