The federal government has responded aggressively to the spread of the COVID-19 pandemic, doing what it can to help ordinary Americans make ends meet during the most difficult of times. Millions of people who've had to stay home from work or have lost their jobs entirely are counting on the $1,200 stimulus checks that the government is in the process of sending out. For many, the money will be a desperately needed lifeline to pay essential bills.
However, not everyone qualifies to receive a stimulus check, and those who've gotten left out have scurried to find loopholes that can let them get at least some money from the federal government. Married couples in particular are looking at whether they can benefit from filing separate tax returns in an attempt to work around the income limitations surrounding the payments. Filing separately typically doesn't work well, resulting in greater amounts of tax owed or failing to unlock any substantial stimulus payment. However, there's one set of circumstances in which couples who would otherwise get nothing might be able to get a stimulus check by doing separate returns.
Couples and the Social Security number requirement for stimulus payments
The CARES Act calls for the federal government to pay most adult Americans $1,200 per person. That amounts to a $2,400 payment for most married couples who file jointly.
However, there's a provision in the law that limits the availability of stimulus payments to those who meet what it calls the "identification number requirement." In simplest terms, no stimulus payment is allowed if an individual doesn't have a Social Security number. Even worse, if a married couple files a joint return, then neither spouse can get the stimulus payment -- even if one of them has a valid Social Security number. The only exception is when one of the spouses is a member of the U.S. Armed Forces, in which case joint returns don't hurt eligibility to get a stimulus check.
How to fight back
Some couples are fighting against the part of the provision that denies those with Social Security numbers from getting stimulus payments if their spouse doesn't have a Social Security number. At least one class action lawsuit is active, and others are circulating petitions to ensure that U.S. citizens get checks regardless of their marital status to immigrants.
There's a way that couples in this situation can get at least one stimulus check. By filing a separate return, you're no longer included in the provision governing joint filers.
However, filing separately comes at a cost for many couples. The more uneven the incomes of the two spouses are, the more likely it is that you'll pay a higher tax bill. In some cases, the increased taxes will more than offset any stimulus money you receive.
Even so, couples in some states have another workaround. If you live in a community property state -- Alaska (for those who elect that treatment), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin -- then most income gets treated as community income. That means that each spouse on a separate return would claim half of the total income, even if the jobs each worked paid different amounts. Similarly, most deductible expenses get portioned out 50/50. Only a limited number of items get treated as separate property and are allocated entirely to one spouse.
Do what you can to end up ahead
Because of that quirk, couples in community property states don't end up paying more in tax as often as those in other states. For couples in which one spouse is an immigrant without a Social Security number, community property laws make it a lot more likely that filing separately to get a stimulus check is a smart move.
It might not seem fair to have to go to such lengths in your tax planning just to get the money that others are getting from the federal government without nearly as much hassle. But that doesn't mean you should leave that money on the table. Take a look at your situation and see if you can use this tax strategy to get the stimulus check you need.