“It’s not the thought that counts. It’s the thoughtful thought that counts” – John Ruhlin
- President Trump signed the coronavirus economic relief package on Sunday December 27
- The relief package includes a second round of $600 direct payments to individuals
- These direct payments are available to many US Expats and their US citizen dependent children
- Having a Social Security Number (SSN) is a condition for receiving the individual payments
After initially refusing to sign the coronavirus relief package on December 23 while asking for larger direct payments for individuals in addition to other changes, the president finally signed the stimulus bill on Sunday evening.
This event opened the door for the second round of Economic Impact Payments that were originally expected to begin being distributed this week. It is unclear at this time when the IRS will begin distributing the payments.
As I write this update, Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer are expected to attempt passing a stand-alone bill to increase the amounts of the stimulus payments to $2,000 per individual, as requested by the president. At best, this measure would only change the amount of the payments, without impacting any of the requirements for eligibility, but the measure does not have the support of the Republican members of Congress, so it is unlikely to be successful.
Therefore, we are going to focus on the individual direct payments as approved in the new law in its current form, and answer the most important question in the mind of many US Expats:
Am I and my family eligible for this relief? What do we need to know about it?
Let’s start with the good news: Are US expats eligible?
The short answer is YES.
There are no requirements in this law that automatically make US Expats ineligible.
The three main requirements to be eligible for these payments are:
- Being a US Citizen or US resident
- Having a Social Security Number
- Being an adult with income below certain thresholds or the dependent child of such an adult
Let’s dive into the details to understand better who may receive this payment and who may not:
Who is eligible?
US citizens and US residents with social security numbers, including if they are deceased and they died at any time during 2020.
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.
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.
In the case of US Expats, the citizenship and social security requirement means that their children who are not US citizens or who are US citizens without social security numbers, their foreign spouses with ITINs or even accidental Americans without social security numbers are not eligible to receive the individual payments.
How much are these payments for?
$600 per eligible adult and the same $600 per eligible qualifying dependent child under age 17. A family of four would therefore be eligible for a $2,400 payment.
In the first round of individual payments approved last March, the payments were larger for adults ($1,200) and smaller for their qualifying children ($500). In this second round, the payments are equalized at $600 for both categories of recipients.
What are the income limitations?
The payments are subject to 2019 Adjusted Gross Income (AGI) limitations. AGI is reported on Line 8b of your 2019 tax return.
Payments start to phase out when the AGI is above $75,000 for single taxpayers, above $112,500 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.
How should we expect the payments?
The IRS will deposit your payments in your US bank account, using information you provided to the IRS on your past tax return for purposes of a refund deposit or for purposes of withdrawing a tax balance.
If you provided your US bank information through the online tool provided by the IRS earlier this year for the first Economic Impact Payment under the CARES Act, the IRS will use that information. 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 and they will be mailed out to foreign countries, in the same manner as the first checks were mailed out.
What happens if I am eligible for this 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 when your 2020 tax return is filed.
When can we expect to receive the payments?
Initially, Treasury Secretary Steven Mnuchin expected the payments would be rolled out quickly, as early as this week. The signing delay by the president puts this into question, but the intent to roll out the payments as quickly as possible remains.
Expect to hear more about the revised timeline in the coming days.
Do you have any tips for US Expats? Anything they can do to increase their odds of receiving this payment?
I’m glad you asked.
US Expats do not usually benefit much from filing their US tax returns annually.
In the rare occasions when a benefit is extended to Americans abroad, it is important to create awareness, including any tax planning opportunities to maximize their odds of receiving the benefit.
What are the planning opportunities in the case?
- Did you have a child abroad in 2020? If you did, make sure to apply for the baby’s US citizenship and Social Security Number as soon as possible. The pandemic doesn’t make this easy, but you have time until the due date of your 2020 US tax return, including extensions, which is October 15, 2021 or even December 15 2021 if needed, for the timely claim of the individual payment. If your child already has a social security number, do not forget to claim your child as a dependent in your 2020 US tax return.
- Do you have a spouse that doesn’t have an SSN? Unlike with the CARES Act, under the new law, being married to a foreign spouse without a Social Security Number no longer disqualifies the US Citizen spouse from receiving their own Economic Impact Payment. This is very good news for US Expats who file joint tax returns with foreign spouses who have ITINs and no SSNs. If you do not receive the payment before you file your 2020 tax return, make sure to claim it through the Recovery Rebate Credit Form on your 2020 tax return.
- Is your income too low to file a US tax return? It may be worth it for you to file a 2020 tax return even if you are not normally required to file one. If you missed the opportunity to register online through the tool that the IRS made available for non-filers on its website through November 21 2020, and you do not receive either the first or second economic impact payments of $1,200 and $600 respectively, you can claim them by filing a 2020 US tax return and completing the Recovery Rebate Credit Form.
- Do you claim the Foreign Earned Income Exclusion? This makes you eligible for the individual relief payments at much higher income levels than taxpayers who do not claim it or are not eligible to claim it. I explained why this is the case back in May when discussing the first Economic Impact Payment. This “loophole” also applies to the second round of payments. Here is a link to that post. Depending on your circumstances, it may make sense for you to claim the Foreign Earned Income Exclusion in 2020 to receive these payments if your income would otherwise disqualify you. IMPORTANT CONSIDERATION: if you later revoke the Foreign Earned Income Exclusion, you cannot claim it again for a period of five years without obtaining express IRS permission, so this planning technique needs to be used with care and taking into consideration longer term consequences beyond the one time individual stimulus payments.
This is all for now.
We will keep checking for continued updates and will share with you any useful information as it becomes available.
In the meantime, enjoy the Holidays and
Happy New Year!