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Eligibility Requirements for Individuals Receiving the US Stimulus Payment

On March 27, 2020, Congress enacted some new measures that provides some stimulus payment for eligible individuals and provides some form of relief for people with retirement plans.

 

Regarding the stimulus payment:

For the 2020 tax year, eligible individuals will be receiving a credit, against their 2020 taxes, of up to $1200 (or $2400 for joint filers), plus $500 for each qualifying child. The payment is reduced by 5% of the individual’s adjusted gross income (AGI) in excess of $75,000 (or $112,500 for head of household filers, or $150,000 for joint filers). The payment thus gets totally phased out with AGI of $99,000 (or $146,500 for HH, or $198,000 for joint filers).

 

An “eligible individual” is everyone in the world who is not a US non-resident alien. This would include US citizens living abroad, as well as US non-citizens who file as residents under the substantial presence test.

 

For individuals who spend enough time in the US to qualify as residents under the substantial presence test (SPT), but who normally still file as non-residents of the US (either under a Closer Connection Statement or a treaty non-residency claim), they may decide to file as a resident in 2020 if that would entitle them to the payment. 

 

Note that the eligibility is based on AGI on the tax return for the 2020 year.  There may be an incentive to lower such 2020 AGI (by, for example, claiming the foreign earned income exclusion (of up to $107,600) instead of reducing the tax through foreign tax credits).

 

Also note that there is an exemption where the taxpayer only has an ITIN (and not an SSN), or where they are filing joint and their spouse only has an ITIN.   There may be an incentive, in certain cases, for a US citizen with a non-resident spouse to file separately, for the 2020 tax year, if that would entitle them to the payment.

 

The IRS will have already issued, or will be issuing, advance payments to eligible individuals based on the AGI of their 2019 returns (or, if they have not been filed yet, the 2018 returns). The final calculation will be based on the 2020 returns though; such that, if the 2020 income is lower, there may be an additional credit on the 2020 return. It is not clear yet what happens if the 2020 income is higher – i.e. whether an advance payment will have to be returned – the legislation does not appear to cover that.

 

Many checks have already in the process of going out to taxpayers with direct deposit with the IRS, based on their 2018 (or, if they have filed it, 2019) tax return. However, if they have not, it would be helpful to file their 2019 US return ASAP, if they would qualify based on 2019 income, so that they can get their advance payments soon. Of course, their final payment will still need to be trued up when they file their 2020 return.

 

In addition to the stimulus payment, the changes allow taxpayers to withdraw up to $100,000 from their US retirement plans (ex., 401k or IRA) without being subject to the 10% early withdrawal penalty (for taxpayers below the age of 59 ½), if they or their spouse has been diagnosed with COVID, or if they experience adverse financial consequences as a result of COVID. They can elect to have it taxed all in 2020, or over three years starting in 2020, unless they repay the amounts back into the plan within three years of receipt.

 

 

 

 

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