Third Stimulus Income Threshhold

[Dave T]

T/P took out almost the max from his 401k  in 2020 due to Covid ( $99K).

I do the 8915-E comparing paying off the full amount vs. the 1/3 option.

T/p  and wife decide to pay off full amount in 2021 and be done with it. Fine that's their decision. 

The problem is now their income in 2020 exceeds $150k and thus no third stimulus unless IRS goes by 2019 income.

Seems like in light of this the 1/3 would be the way to go.  Am I missing something?

 

 

 

 

[Lion EA]

1/3 or wait to e-file until after they receive their EIP3 if 2019 will get them EIP3.

[Gail in Virginia]

I have suggested waiting to a couple of people since they qualified based on 2019 income but not 2020.  However, does anyone know if the EIP3 is going to work like EIP1 and EIP2, and they will not have to pay it back if income exceeds limits next year?

[Abby Normal]

16 minutes ago, Gail in Virginia said:

they will not have to pay it back if income exceeds limits next year?

Correct, they will not have to pay it back.

The Child Tax Credit has to be paid back if your income is over a certain amount. That's going to bite a lot of divorced parents next year.

[Pacun]

If the client had about 25K to pay taxes on 99K... I would have suggested to divide it in 3 years and to send back those $25K to their 401k plan.  That way they would only pay taxes on 8K this year. 

With a bit of effort, they could fork out the 33K and pay 0 taxes on the distribution this year. 

[Dave T]

Yes I suggested putting $25K back into the 401k but as we've all experienced you can only suggest.

I plan on calling him again tomorrow and suggest again.

 

[TexTaxToo]

6 hours ago, Gail in Virginia said:

I have suggested waiting to a couple of people since they qualified based on 2019 income but not 2020.  However, does anyone know if the EIP3 is going to work like EIP1 and EIP2, and they will not have to pay it back if income exceeds limits next year?

In fact, you get three bites at the apple (if you haven't yet filed for 2020).

"As rapidly as possible," the IRS will send payments to those who qualify based on the 2019 return (if 2020 not yet filed).

Later this year, the IRS will send payments based on the 2020 return (if 2020 filed by then) - you will get the difference if you were paid in the first round and are now eligible for more.

Next year, you can claim RRC based on your 2021 income if eligible for more then.

So, wait to file if you qualify for more based on 2019 return.