After initially refusing to sign a long-awaited second coronavirus relief package, which had managed to eventually make it through both houses of Congress – on the grounds that it didn't offer America's out-of-pocket taxpayers enough – President Trump finally signed it into law on Sunday evening.
Here, U.S.-based, U.S. expat tax specialist Marina Hernandez, founder and principal of Crossborder Planner, explains what American expats need to know about the legislation...
Late in the evening on Dec. 23rd, while still asking for larger direct payments for individual taxpayers in addition to other changes, the president finally signed the U.S.'s second coronavirus stimulus package into law.
The signing of the bill, already approved by Congress, opened the door for the second round of Economic Impact Payments (EIPs) that, according to a Treasury Department statement issued today, the IRS is expected to begin issuing "as early as tonight" to "millions of Americans, as part of what the Treasury called the "Coronavirus Response and Relief Supplemental Appropriations Act of 2021".
As I write this update, The House of Representatives has approved (as of yesterday) a stand-alone bill that would increase the amounts of the stimulus payments to US$2,000 per individual, as requested by the president. The current amount stands at US$600 (£438, £482), and for now, that is the amount that will be going out to taxpayers.
At best, the proposed measure would only change the amount of the payments, without impacting any of the requirements for eligibility, and as it lacks Republican support in Congress, it's considered unlikely to prevail in the Republican-controlled Senate.
However, today, Senate Majority Leader Mitch McConnell said the Senate would look to address President Trump’s demand for larger stimulus checks, although he stopped short of promising to allow a separate vote on the matter, according to media reports emerging from Washington.
So for now, at least, I'm going to focus on the individual direct payments as approved in the new law in its current form, and answer the two questions most U.S. expats will be asking: "Am I and my family eligible for this relief; and what else do we need to know about it?"
First, the facts:
• President Trump signed the second U.S. coronavirus economic relief package late on Sunday, Dec. 27
• This second relief package includes a second round of EIPs, worth US$600, to be paid, as under the previous coronavirus stimulus package, directly to individual taxpayers
• These direct payments will be available to many U.S. expats as well as their U.S.citizen dependent children
• Having a Social Security Number (SSN) will be a condition for receiving these individual payments
Under the previous stimulus package, American taxpayers – including expats – received a one-off stimulus payment of up to US$1,200 per person.
Who is eligible...
In addition to being required to be a U.S. citizen or U.S. resident, and having a Social Security number, those hoping to receive this latest stimulus payment will, as before, need to be either an adult whose income falls below certain thresholds, or the dependent child of such an adult.
Someone who meets these requirements may be eligible even if they're deceased, providing that they died at any time during 2020.
In the case of dependent children, they need to either live in the U.S. and have Social Security numbers, or, if living outside the U.S., be U.S. citizens with Social Security numbers.
...and who is not
Those who won't be considered eligible for this second round of stimulus payments will include non-resident aliens; dependents of a U.S. taxpayer who are age 17 or older; trusts and estates; individuals who died before Jan 1, 2020; U.S. citizens who lack SSNs; and non-citizen children of U.S. citizens living outside the U.S.
In the case of U.S. expats, the citizenship and Social Security requirement means that any children they may have who are not U.S. citizens, or who are technically U.S. citizens but lack Social Security numbers, will not be eligible to receive the individual payments, nor will any non-citizen spouses with ITINs (inidividual taxpayer identification numbers). So-called "accidental Americans" also won't be eligible unless they have SSNs.
How much the payments
this time around are worth
As noted above, the rate set by the current draft of this second Covid-19 relief package is US$600 per eligible adult, with the same US$600 going to each qualifying dependent child under the age of 17.
A family of four, therefore, would in theory therefore be eligible for a US$2,400 payment.
In the first round of individual payments approved last March, the payments were larger for adults (US$1,200), and smaller for their qualifying children (US$500).
Again as noted above, the amounts could change if the Democrats are successful in their efforts to raise them.
This time around, eligibility to receive the stimuls payments will depend on an individual's 2019 Adjusted Gross Income (AGI) limitations. (AGI is reported on Line 8b of your 2019 tax return.)
Payments start to phase out when a taxpayer's AGI is above US$75,000 for single taxpayers, above US$112,500 for heads-of-household, and US$150,000 for married couples filing a joint tax return.
You can use this calculator published by Forbes to estimate your payment amount.
How the stimulus
payments will be made
If you're eligible for them, the IRS will deposit your stimulus payments directly into your U.S. bank account – assuming you have one – using information that you provided them on your last tax return,.
If you provided your U.S. 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 U.S. bank account, you can expect the second payment to be deposited in the same way.
If you haven't provided the IRS with any U.S. bank account details, the tax authority will mail you a check. Checks are expected to take several weeks to be printed and mailed out, and they will be sent abroad to expats in the same way the first checks were earlier this year.
What if my payment fails to arrive?
First of all, don't worry.
You will have a chance to remedy this when you file your 2020 tax return. You'll be able to use a Recovery Rebate Credit form to calculate how much you're owed, and then claim your full or partial missing payments at the same time you file your 1040.
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. However, President Trump's delay in signing off on the package put this into question.
Nevertheless, there's a strong desire in Washington to get the payments out as quickly as possible. So we expect to hear more about the revised timeline in the coming days.
Any tips to increase an
expat's odds of receiving
As a rule, U.S. expats rarely receive much in the way of benefits in exchange for their annual filing of their U.S. returns, and their occasional payment of tax to Uncle Sam.
On the rare occasions when a benefit is extended to Americans abroad – as in the case of these stimulus payments – it is therefore important to create awareness among expats of their eligibility to receive them, including any tax planning opportunities they might present, in order to maximize their odds of receiving the benefit.
Are there any such tax-planning
opportunities in this case?
- Did you, for example, have a child while abroad in 2020? If you did, make sure to apply for the baby’s U.S. citizenship and Social Security number as soon as possible.
The pandemic, which has closed many U.S. embassies and consulates around the world and caused others to cut back on citizenship services, has not made this easy for the past eight or nine months, but you have time until the due date of your 2020 U.S. tax return, including extensions – which is to say, Oct. 15, 2021 (or even Dec. 15, if needed), for the timely claim of the individual payment.
If your child already has a Social Security number, don't forget to claim him or her as a dependent on your 2020 U.S. return.
- Do you have a spouse who 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 excellent news for U.S. expats who file joint tax returns with foreign spouses who have ITINs, and no SSNs.
If you don't receive your 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 U.S. tax return? Even if it is, it might nevertheless be worth it for you to file a 2020 tax return, simply because of the opportunity to receive the two economic impact payments – of US$1,200 and US$600 respectively. You could claim them by filing a 2020 U.S. tax return, and completing the Recovery Rebate Credit form.
If you're not sure whether you should have been filing in the past, and there is a possibility that perhaps you should have been, and thus might be deemed to be "noncompliant", you may wish to consult a qualified tax professional before going ahead and filing a 2020 tax return. In such a situation, it would be important to have a good understanding of one's exact situation, and of the potential ramifications of filing a tax return, before you did it.
- When you file your tax returns from abroad, do you normally claim the Foreign Earned Income Exclusion? This makes you eligible for the individual relief payments at much higher income levels than taxpayers who don't claim it, or who aren't eligible to do so.
I explained why this was the case back in May, when discussing the first Economic Impact Payment. This “loophole” also applies to the second round of payments. (Here's 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.
An important consideration to be aware of though: If you later revoke the Foreign Earned Income Exclusion at a later date, you then would be unable to 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 while taking into consideration longer-term consequences beyond the one-time individual stimulus payments.
That's all we've got for you for now. We urge you to keep checking in with us, though, going forward, for regular updates, as we will always share with you any useful information that comes our way as soon as we receive it.
Marina Hernandez, pictured above, is an Enrolled Agent and Certified Financial Planner, based in the Philadelphia area of Pennsylvania, who advises clients around the world on their taxes. She also publishes her thoughts on tax issues on The Crossborder Planner, an educational website for U.S. expats and U.S. immigrants, where the content provided is for informational purposes only. This article is taken from that website, where it may be read by clicking here.
The content provided on The Crossborder Planner site is information of a general nature and does not seek to address the circumstances of any particular individual or entity. Readers are urged therefore not construe any of the information or other material shared on the site as advice of any nature, be it legal, tax, investment or other.