As reported widely in the news, The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The law introduced “economic impact payments” that were applicable to individuals and businesses. Although many Americans are eligible for these “economic impact payments” (aka “stimulus payments”), the rules are a bit more complex for individuals with international matters. If you are a US expat or inpat, how can you tell whether you are eligible to receive a stimulus payment? And if you are eligible, how much can you expect?
Here, we summarize the most important provisions for individuals with cross-border situations.
Individuals who are eligible for stimulus payments include US citizens, green card holders, and resident aliens who have a Social Security Number (SSN) that is valid for employment. This includes individuals who live outside the US. However, it does not include individuals who can be claimed as a dependent on another eligible individual’s tax return.
Individuals are NOT eligible for stimulus payments if they are nonresident aliens or individuals residing in the US on certain visas that make their days exempt from the US Substantial Presence Test of residency (e.g., G-4, F-1, and J-1 visas). Also, if an eligible individual files jointly with a spouse who has an Individual Taxpayer Identification Number (ITIN), the ITIN spouse will not be considered an eligible individual.
Eligible Payment Amounts
Eligible individuals can receive up to $1,200 per person ($2,400 if Married Filing Jointly). Eligible individuals can also receive an additional $500 per each qualifying child claimed as a dependent on their tax return.
Eligible Payment Phase-Outs
Stimulus payments are available so long as your “adjusted gross income” per your tax return doesn’t exceed certain thresholds (the lower end or the ranges below). In addition, you may qualify for a reduced payment amount if your adjusted gross income falls within the ranges. Payments are not available if you earned above the higher end of the range:
- $75,000 and $99,000 – Single filers
- $150,000 and $198,000 – Married Filing Joint filers
The thresholds increase by $10,000 for each additional qualifying child. For example:
- $109,000 – Single filers + one qualifying child
- $208,000 – Married Filing Jointly + one qualifying child
To be a qualifying child, the individual must:
- Be claimed as a dependent on the tax return
- Be under the age of 17 (i.e., 16 or younger)
- Be a US citizen, green card holder, or resident alien
- Have a valid SSN or Adoption Taxpayer Identification Number (ATIN)
How the IRS Will Deliver Payments
The Internal Revenue Service (IRS) will use either your 2018 or 2019 Individual Income Tax Return details to calculate your payment. Then, if you have previously provided the IRS with your banking information, it will direct deposit the payment to your bank account. If you want to update your banking information or provide that information to the IRS, you can use this link. If you have not provided your banking information and do not want to provide it, the IRS will mail a check to your last known address. The only way to update your address is to file a 2019 Individual Income Tax Return.
Payments for Expats Claiming the Foreign Earned Income Exclusion
In general, stimulus payments are calculated based on the adjusted gross income (AGI) on either your 2018 or 2019 tax return. At this time, it is unclear how the calculation will work for US individuals living overseas who claim the Foreign Earned Income Exclusion (FEIE), which allows expats to reduce their AGI by up to $103,900 (for 2018) or $105,900 (for 2019).
For taxpayers who claim the FEIE, the IRS typically uses “modified adjusted gross income or MAGI” instead of AGI to determine eligibility for tax benefits. MAGI requires that you add back any foreign earned income exclusion, housing exclusion, and housing deduction amounts to your AGI.
Although MAGI is used for tax calculations, the CARES Act makes no reference to MAGI for stimulus payments. Section 6428(d) only references AGI. Therefore, it is likely that the stimulus payments will be calculated on AGI for individuals offshore and not MAGI (at least for the current payments). This may change for the 2020 tax return.
The IRS recognizes that certain individual taxpayers are not required to file tax returns. Non-filers (i.e., those who are not required to file, NOT delinquent or late filers) must use this link to enter certain basic information for a “simplified return” in order to generate a stimulus payment.
Nature of Stimulus Payments and 2020 Tax Return Implications
Stimulus payments are not considered income, but rather a 2020 “advanced refundable credit.” This means that they will not be included in taxable income on your 2020 tax return. Instead, the IRS will offer a new tax credit on the 2020 return, and rather than making you wait until you file your tax return next year to receive the credit amount, the IRS is advancing you the expected money now.
So, what if your income changes drastically between now and then? Well, if your income decreases significantly, you may be eligible for a larger credit on your 2020 tax return. The IRS will look at your 2020 AGI and any new qualifying children in 2020 to make this determination. Then, you will receive the rest of the credit amount (i.e., total credit less the stimulus payment you already received) next year when you file your 2020 return.
Normally, the reverse would also be true—if your income increased and the credit calculated on your 2020 return was lower than the stimulus payment you were given, then typically, you would need to repay the excess stimulus payment. However, the IRS has made it explicitly clear that it will not reduce or expect repayment of the stimulus in these situations. Therefore, if you receive stimulus payments based on 2018 or 2019 data but would not have been eligible based on your 2020 data, you will NOT be expected to pay the money back.
If you have questions about your eligibility status or circumstances, The Wolf Group can assist. Please contact our office to set-up a Discovery Call.