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By Mallika Mitra
March 26, 2021
Stimulus Check, 1040 Tax form and a calculator
Money; Getty Images

The IRS released guidance this week that could make more taxpayers eligible for a third stimulus check, or a bigger payment, if they already received one.

Included in the recent, $1.9 trillion stimulus package is a provision that waives federal income taxes on up to $10,200 of unemployment income per person for individuals or couples with adjusted gross income (AGI) up to $150,000. The IRS clarified this week that income calculations to determine eligibility for the tax break should exclude unemployment compensation. Reducing income subject to tax will make more people qualify for this unemployment tax break — and also for a third stimulus check, says Ed Zollars, CPA and partner at Thomas, Zollars & Lynch. (The IRS will use the most recent tax return it has on file to determine your eligibility, whether that’s 2019 or 2020.)

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So how does this impact third stimulus payments? The eligibility criteria for a third stimulus payment says that individuals with an AGI of $75,000 or less will get $1,400, and married couples with an AGI of $150,000 or less will get $2,800 (plus checks for any eligible dependents). For couples with an AGI above $150,000, the stimulus amount is lowered and completely phases out at $160,000.

Here’s an example from Andy Phillips, director at The Tax Institute at H&R Block: A hypothetical couple with $140,000 in combined wages and unemployment compensation ($10,200 in benefits for each spouse, or $20,400 total) have an AGI of $160,400. But their modified AGI minus the unemployment compensation is just $140,000, making them eligible for the tax break. (While that’s a relatively high income for the jobless, it could be the case that they lost their well-paying jobs part-way through the year.) If not for the exclusion, these taxpayers would have exceeded the income threshold and definitely not have been eligible for any stimulus money, Phillips says.

The IRS has not yet responded to a request from Money to confirm that the recent guidance will expand stimulus payment eligibility. Yet tax experts say that is a likely interpretation.

“A married couple could get an extra bang for their buck with this change,” Zollars says.

The IRS has said taxpayers who have already filed their 2020 taxes should not file an amended return at this time, and that the agency will issue further guidance on how to recoup any excess taxes paid on unemployment income.

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