College students may be able to collect up to $ 1,800 in incentive payments, here’s how The Bank Rate
When it comes to stimulus checks, no one could feel more like they slipped through the cracks than the students.
Not really alone, but not entirely under the financial responsibility of their families, many are still claimed on the taxes of their parents or guardians as “dependent adults”. But that’s to their own detriment: this classifier is what excluded them from both rounds of dunning checks, even though they have not been immune to job loss or financial hardship.
“As long as they are dependent on their parents, they don’t receive payment,” says Thomas O’Connor, CFP, senior wealth advisor at Keel Point.
But if you’re a student, it’s essential to take a close look at your finances – in some cases it could be as high as $ 1,800, including both the first $ 1,200 stimulus check and the second payment of $ 600. . You may have unknowingly aged out of the “dependent adult” category in 2020 or experienced some other type of circumstantial lifestyle change that might otherwise have qualified you for payment. If so, experts say you should file for what is called a “recovery discount credit” when you file a tax return for 2020.
“Students in particular should be careful not to overlook these payments if they are supporting themselves and cannot be declared dependent on someone’s tax returns,” IRS Commissioner Chuck Rettig said in a earlier November declaration. “A few minutes of research could really help students.”
Here’s what students should know about reconciling that $ 1,800 stimulus payment and what to do next.
$ 1,800 Recovery Refund Credit: Which Students Should Apply?
The CARES law and the end December’s additional $ 900 billion relief package sent two stimulus checks to each eligible low- and middle-income adult with a cumulative value of $ 1,800 and then $ 1,100 for each of their dependent children under the age of 17. Most college-aged students over 17 were excluded from both checks by design, along with other dependent adults, including people with disabilities.
“This is only for those under the age of 17, and again, eligibility will be for parent taxes and not for dependent income tax information in order to receive this stimulus,” says Mark Jaeger. , director of tax development at TaxAct. “Dependent adults would not be eligible.”
But students want to be especially careful because they often straddle the lines between independent and dependent taxpayer status.
The IRS has a five-part test to determine whether adults are eligible to be claimed as a dependent. If they are studying full time for at least five months of the year, they must be under the age of 24. Most of the time, they must be related to the adult taxpayer claiming them and share the same permanent status. address. And the biggest qualifier: dependent students can have a job, but they can’t provide more than half of their own support.
1. If you graduated, started working or turned 24 in 2020
Many students in 2020 may have reached the age of 24, especially if they are in a graduate program. Another group may have graduated, married, or started working full time, supporting themselves and leaving their parents’ home.
If any of these situations apply to you, or if you’ve changed your lifestyle, you’ll likely be eligible for a retroactive stimulus payment of $ 1,800 ($ 1,200 in the first round and $ 600 in the second). This is because your tax situation changed between 2019 and 2020.
But as always, you need to make sure you meet the income eligibility criteria to receive your check for $ 1,800: earn up to $ 150,000 as a married couple or $ 75,000 as a single adult. Payments are subtracted by $ 5 for every $ 100 above this income threshold. In the first round, you won’t get any raise payouts if you made more than $ 99,000 as a sole filer and $ 198,000 as a couple. For the second round, the checks were cut to annual incomes of $ 87,000 and $ 174,000 for individuals and married filers, respectively.
2. Self-employed students, who do not normally file an income tax return
However, certain circumstances may make a college student eligible for a stimulus payment even if they have not aged as a dependent adult or have moved out and graduated.
One of these groups would include independent students with little or no income. They cannot be reported as a dependent on another adult’s income tax return, but they normally do not need to file one because the income they earned in the year is less than your standard deduction (in 2020, people who earned less than $ 12,400 do not need to file an income tax return, according to the IRS). With no direct deposit and an address on file, you probably didn’t receive a check because the IRS and the Treasury Department had no information on where to send it.
If you are that kind of student, you will want to claim your payment of $ 1,800.
3. Those who wish to change their tax status – but be careful
Although perhaps seen as a more extreme measure, students might decide to independently apply for 2020. This is, of course, only if they can prove that they have provided more than half of the amount. their own support during the year. College students living on campus and away from home are certainly approaching this threshold, which means that it may be worth looking at your finances.
“If they live at home, are students, and don’t work, it would be harder to say, ‘I’m not a dependent,’ says Mark Steber, senior vice president and director of taxes at Jackson Hewitt.
Still, there are pros and cons to making such a change. If you are a student working at the university, filing your own tax return independently could guarantee you a refund of federal taxes withheld from your paychecks.
But changing tax status could cause your parents or guardians to miss out on other deductions that could be worth more than the $ 1,800 stimulus check in the long run. One such example: if your parent or guardian is single and has no other eligible dependents, he would be excluded from the declaration with the more tax-efficient “head of household” status and would instead be considered as a single declarant. .
Other tax credits include the Earned Income Tax Credit (EITC), a tax break for low to moderate income workers and families ranges from $ 538 to $ 6,660 depending on the number of children you have. Your family might also miss the U.S. Tax Credit (AOTC) with a maximum annual value of $ 2,500 per eligible student and the lifelong learning credit (LLC) with a maximum value of $ 2,000 per tax return. Students, however, can claim these credits themselves as an independent taxpayer.
At the end of the line
More stimulus funds may soon be on the way. President Joe Biden’s US bailout included provisions that make all dependent adults eligible for a third stimulus check.
Even if none of these specific situations apply to you, it may be helpful to consult a tax preparer to help you assess your situation and determine if you should apply for the credit.
What is most beneficial with the payback refund credit is that it cannot come back to hurt your finances. The payments were not considered taxable income, and Americans who were fortunate enough to see an increase in 2020 will not be required to repay that money if they now earn outside income eligibility limits. The IRS says that the credit you receive can only reduce the amount you owe or increase your refund amount.
“Everyone might need a little help at tax time, and a tax professional should be able to help you with that, or at a minimum, lower the amount you owe this year,” Steber says.