How does Adjusted Gross Income (AGI) Affect Stimulus Payments?
We hear from Tanveer – a highly experienced EA for 13 years – and provide clarity on AGI, who can receive Stimulus Payments, and what the process is.
Many Americans living abroad assumed they wouldn’t be eligible, but they are, and a lot more people can receive the stimulus payments than many think.
What is Adjusted Gross Income (AGI)?
Congress has responded to financial hardship caused by COVID-19 by issuing a stimulus package to U.S. citizens and Green Card holders – the CARES (Coronavirus Aid, Relief and Economy Security) Act. The following amounts are available:
- $1,200 USD for individual taxpayers
- $2,400 USD for spouses filing jointly
- For families, an additional $500 per qualifying child under the age of 17
If you are expecting a stimulus payment it is important to know what an AGI is. Adjusted Gross Income (AGI) is the total of all income you have earned during a tax year. This can include your salary, dividends, rental property income, alongside any other source of income. Your tax return and whether you filed a single or joint return will be assessed to calculate your AGI. If you fit into the category to qualify, you will receive your stimulus payment check.
The CRITICAL POINT for most Americans and Green Card holders living abroad is that foreign income can be deducted from the AGI. If you have lived overseas and claimed a Foreign Earned Income Exclusion or Foreign Housing Exclusion, this will cause a deduction from your total income that is used to calculate your AGI.
To put it simply, your AGI is a total of all earned income less of the exclusion and any other deductions such as self-employment tax or IRA. Your AGI will be based on your 2019 tax return, or 2018 if you have not yet filed.
What is the threshold?
The stimulus payment threshold for individual filers is $75,000 USD.
Individual tax filers with an AGI of up to $75,000 USD and married couples filing joint returns with an AGI of up to $150,000 USD will receive the full payment.
Those filing individually with an AGI above $99,000 USD, and joint filers with no children with an AGI above $198,000 are not eligible.
Does your Adjusted Gross Income need to be under the threshold and who can qualify to receive stimulus payments?
Many U.S. citizens and green card holders assume that if they earn more than the $75,000 USD threshold, they will not receive the stimulus. However, you can be earning a lot more than the threshold and receive the whole stimulus. Likewise, many expats think that because they are expats, they are not entitled to stimulus payments. This is largely due to confusion over the IRS website criteria, which states you have to be a tax resident. Many assume that this means you must live in the U.S. to be eligible, when this is not the case.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
Adjusted Gross Income Summary
A lot more people can receive the stimulus payments than many think. As long as you are a U.S. citizen, Green Card holder, or live and file taxes in the U.S., you may qualify upon meeting the following conditions:
- You have filed a 2018/2019 IRS tax return;
- You are not dependent of another taxpayer;
- You have a work eligible social security number;
- Filing as an individual: have an AGI less than $99,000 USD;
- Joint filers with no children: have an AGI less than $198,000 USD.
As a U.S. expat, even if your income exceeds $200,000 USD annually, you can still get your stimulus payments depending on how much income you have excluded for that year. To put this into an example, a U.S. expat living in Dubai earning $150,000 USD annually and excluding $100,000 USD annually has an AGI of $50,000 USD (below the threshold) can claim and receive their stimulus payment.
For those filing with an AGI above the threshold, the payment is reduced by $50 USD for every $1000 USD above the $75,000 USD threshold / $5 USD for every $100 USD above the threshold.
- A single filer with $80,000 AGI = $950 stimulus
- A single filer with $85,000 AGI = $700 stimulus
- A married couple filing jointly with $170,000 AGI = $1,400 stimulus
- A married couple filing jointly with $190,000 AGI = $400 stimulus
What happens now?
U.S. expats who filed their 2018/2019 tax returns electronically, listing a U.S. bank and address, will have the payment deposited into their bank account. U.S. expats with a foreign address will receive paper checks.
Banking the cheque if living abroad?
If you do not have a U.S. bank account, it becomes difficult to deposit the paper check. You should try to ensure that you have a U.S. bank account to deposit the check, but if you do not then an alternative would be for immediate family members with a U.S. bank account to add you as a joint account holder and have the money deposited into this.
If this also is not a viable option, then you can look into banks that offer opening U.S. bank accounts overseas – but it may get tricky. What we suggest as a better alternative is opening a U.S. dollar account with TransferWise, whom can provide your information to the IRS and have the money transferred via the SWIFT payment network.
What if my previous tax return makes me ineligible but I am now unemployed?
If you find yourself unemployed or suffering financial hardship compared to the previous year, you will be able to claim the stimulus on your 2020 tax return and will have to wait until next year to receive it.
What if I haven’t filed tax returns?
If you do not meet the requirement through having no income or from being retired, for example, then you should file a non-filer form on the IRS website – but you must have a U.S. bank account.
If you do not meet the filing requirement due to not having filed your taxes, you should file a 2019 return in order to receive a stimulus cheque. Assess what exposure your taxes have; will one year be enough or will it require multiple years? The easiest way to apply for the stimulus payment if you have not filed is to contact a tax expert, whom will assess the best method to get you compliant.
If you have not filed for many years, you will benefit from the streamlined option. As part of the IRS amnesty programme, the streamlined procedures allow a late filer to come clean to the IRS by filing tax returns for the previous 3 years, and FBARs for the previous 6 years. This provides an opportunity to become fully and legally tax compliant. You can utilise the stimulus payment to fund going through the IRS’ amnesty programme and become fully tax compliant and eligible for possible future stimulus payments. The IRS is essentially paying you to become fully tax compliant – seize the opportunity.
To qualify for the Streamlined Foreign Offshore Procedures, you must:
- Meet the non-residency requirement;
- Your failure to report all income and/or pay tax resulted from non-wilful conduct (due to negligence, inadvertence, mistake or misunderstanding). You must demonstrate that your previous non-compliance was not wilful.
Contact us at Expat Tax Online to learn more.
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