Stimulus Check Update: 3 Things to Know About the Plus-Up Payment

If 2020 hit you hard financially, you may have a little help on the way.

Much has been written regarding the IRS’s intention to send bonus payments to eligible Americans who missed out on the third stimulus check. If you recently filed your 2020 tax return or have filed for an extension, here are the three most important things you should know about plus-up payments.

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1. Stimulus checks were based on 2019 tax returns

Eligibility for the first two stimulus checks (for $1,200 and $600, respectively) were based solely on the adjusted gross income (AGI) stated on the last tax return you filed. That was likely for 2019. Unless you filed your taxes early enough this year for the IRS to know how much you earned in 2020, they based your eligibility for a third direct payment on the same 2019 return.

Let's say you were a highly-compensated employee in 2019 and your tax returns show an income high enough to disqualify you from the first two stimulus checks. In 2020, you lost your job and your income dropped dramatically.

If you haven't filed 2020 taxes yet, 1040 tax forms include a line that allows you to claim a recovery rebate credit. In other words, that's your spot to let the IRS know that you may not have qualified in 2019 for the first two stimulus checks but you would have qualified in 2020. There's no such line to fill out regarding the third stimulus check. The IRS will automatically use your 2020 return to determine eligibility. If you're under the income thresholds listed below, the IRS system will be triggered to send you the third round of stimulus payments.

2. Big life changes will prompt a plus-up payment

If you had a baby, adopted, or took custody of a child in 2020, the amount of stimulus payment for which you qualify has changed. For example, let's say you and your spouse received $2,800 during the third round of stimulus payments ($1,400 x 2 = $2,800). Adding a dependent in 2020 means you're now due another $1,400.

You may also receive a plus-up payment if you were married in 2020. Let's say that you and your new spouse had a combined AGI of $140,000 in 2020. You earned $60,000, and your spouse earned $80,0000. Since you were still single in 2019, your $60,000 income was below the threshold eligible for stimulus checks, and you have already received all three payments. However, your new spouse's income was above the threshold and they did not receive the third stimulus payment. Now that you're married and your combined income of $140,000 is below the $150,000 threshold, you're eligible for a full payment of $2,800 ($1,400 per person). Since you've already received your $1,400 stimulus payment, the IRS will send another $1,400 to reach $2,800.

3. This is who's eligible

Republican lawmakers fought to lower the threshold at which Americans could qualify for the third round of checks. As a compromise, those thresholds were somewhat reduced when the American Rescue Plan was passed. This table shows eligibility for the three primary filing statuses:

If you're weren't counting on the plus-up payment to cover everyday bills, you may want to consider other ways you can use it. For example:

• Start (or build) an emergency savings fund
• Pay for a repair to your home or auto that's been postponed due to finances
• Start a micro business
• Pay off a high-interest debt
• Open a brokerage account

The plus-up amount you're due may not be enough to make you rich, but it just might help pay a few bills or give you a financial cushion.