Case Study #5: New child - Spidell

Case Study #5: New child

Tran and Nancy filed jointly in 2018 when they had AGI of $150,000. In 2019, their AGI increases to $175,000, and they also had a baby.

Their economic impact payment will be based on the 2018 return, and they would qualify for $2,400 if they do not file their 2019 return before the economic impact payment is disbursed.

If they do file the 2019 return, they should get an economic impact payment of $1,150 ($2,400 − ($175,000 − $150,000) × 0.05). If the IRS doesn’t process the 2019 return prior to sending the payment, they’ll be eligible for the $500 dependent payment when they file their 2020 return if their AGI is below the threshold.

However, in 2020, due to a large capital gain in January, their AGI is $250,000. They are not entitled to any economic impact payment, so there would be no adjustment, and as the law is currently written they will not be required to pay back the excess payment.

Unanswered question: We don’t know the cut-off date when the IRS might process the 2019 return, causing it to supersede the 2018 return.

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