Is the Stimulus Check taxable in the US and UK

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Stimulus checks issued by the IRS

Coronavirus (COVID19) clearly has an economic effect. One of the countermeasures that the IRS put in place was the issue of the Stimulus Checks to reduce the impact of the recession. The Stimulus Check was introduced under the “Coronavirus Aid, Relief, and Economic Security Act (CARES Act)”.

The Stimulus Check may also be known as the Economic Impact Payment.

The IRS base the amount of money paid under the Stimulus Check based on the 2019 tax return. If you have not submitted the 2019 1040 tax return then the IRS will base the repayment on the 2018 1040 schedule.

This is where problems exist. More on that later.

Who is eligible to receive the stimulus checks?

All US citizens and US residents aliens (who reside in the UK and other countries) will be eligible for the stimulus check.

This means even US citizens that now reside in the UK will benefit from the Stimulus Check.

How much money will US citizens receive from the stimulus check

The following payments will be made from the Stimulus Chec:

– $1,200 for single persons and Head of Households (HoH)

– $2,400 for married people that filed jointly.

 

Thes above amount are reduced for those that earn above a certain limit

– $150,000 for married couples filing joint returns

– $112,500 for head of household (HoH) filers and

– $75,000 for all other eligible individuals

 

Taxpayers will receive a 5% reduction in their payment for the amount their AGI is above these amounts.

Purser Tax - Stimulus

Additional $500 Stimulus Check money for qualifying children

The IRS also provides an extra $500 for each dependent child on top of the money that has been identified from the above.

The IRS has produced a nice summary to help you work out how much money you should expect to receive from the Stimulus check

Purser Tax - IRS Stimulus Checks

Who is not eligible for the IRS Stimulus Checks

US citizens and US resident aliens will not qualify for an Economic Impact Payment if their earnings go above the below amounts:

 

– $99,000 single people

– $198,000 if your filing status was married filing jointly

– $136,500 for head of household

 

Non-resident aliens are not eligible for the Stimulus Checks

 

What is I did not receive the correct amount of Stimulus Check?

it is possible that you were entitled to more money under the Economic Impact Payment. Examples being you no longer earn as much money as you did in the 2018 or 2019 tax return. You may be entitled to more payment if you now have dependent children or indeed you are no married but were not previously.

Any underpayments of the Stimulus Checks will be paid in the form of a tax credit when you file your 1040 tax return in 2020.

How does the Stimulus Check get paid to people in the UK?

The IRS initially sent out check to individuals based on the address that they have for you. It is vitally important that the address you have registered with the IRS is correct and updated. You would not want your Stimulus Check money to go to a stranger, would you?

– Deposit to a bank account if they accept US checks (easy!)

– Paypal now offers to cash your US Stimulus Checks. With a Paypal account, you can easily link it and transfer money to your bank account in the country you live

– Open a TransferWise Borderless account, which gives you a USA bank account number. Some people have had success with getting tax refunds in that account

How will the IRS in the US tax the Stimulus Check?

The Economic Impact Payment is not taxable by the IRS. However, there may be tax due in the 1040 2020 return. This may be because the IRS paid the Stimulus Check based on your 2018, 2019 data that is not correct or relevant in 2020.

Purser Tax - Stimulus Check Tax Issues

A number of changes may have been made since the 2018, 2019 1040 returns

– You may have been paid less or more than the 2018, 2019 1040 returns

– Were married but no longer

– You may have been identified as a Head of Household or person with children that are no longer living with you

 

These have a bearing of how much money you were entitled to under the Economic Impact Payment.

Purser Tax - IRS 2020 tax reclaim

The guidance from the IRS on this is mixed.

For those families who receive duplicate payments for dependent children, they likely will not have to pay the money back.

“There is no provision in the law requiring repayment of a payment,” the IRS states on its site.

But both of those parents should keep the notices on their stimulus payments that they receive for their 2020 tax records.

In other cases, taxpayers eligible for stimulus payments have died but were sent checks anyway based on their 2018 or 2019 tax returns, and relatives received the money.Those sums should be returned to the IRS, the agency states on its website, along with directions on how relatives or other associates can give back the money.

If the deceased individual was married, their spouse only needs to return the money intended for their deceased partner.

How will UK HMRC tax the Stimulus Check?

Similarly to the IRS thew am won’t of money paid to you may not be taxed by the HMRC. However, you may suffer a UK tax liability if submit UK SA100 tax return under the remittance basis. 

This is a very complex are of tax. That said there is a simple explanation. Under the remittance basis you, as a US citizen are only taxed on the income you bring into the UK if you work on the remittance basis. There are three pots that will be analysed for the purposes of UK tax in the eyes of the HMRC.

– Taxable earnings pot

– Non Taxable earnings pot

– Mixed funds

You will suffer UK tax if you have earnings that is paid into one bank account, which we will now refer to as “Taxable Earnings Pot”, and send this money to the UK for any reason.

You will not suffer UK tax on any money remitted under the “Non Taxable earnings Pot”.

There is a third pot called “Mixed funds”. This is a bank account whereby you have a mix of earnings and non-earnings posts. This is a dangerous pot as you need to work out in order what the money is and what has been remitted for UK tax purposes.

Earnings pots is a collection of money that is derived from employment income, self-employment income and money received from investments.

It is important that the Stimulus Check money is paid into a “non-earnings pot” to ensure there are no UK tax liabilities if you use the remittance basis.

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