Economic Payment question

[Hawkins1]

Ok, here's a doozy I am trying to work though.  See facts below.

Taxpayer and Spouse have two kids.  In 2019, income was over $200k so they didnt qualify for stimulus round 1 or round 2 (and now round 3). 

Fast forward to 2020.  Income of taxpayer is over the limits of any payment.  Income of spouse is under the limits for any amount of the payments. 

Question:  Understanding there are adverse MFS vs MFJ tax consequences, can they file MFS where spouse claims both kids and receive the full stimulus for all three stimuluses.  I believe at a minimum they'd qualify for $1,400 (3rd round) x 3 for the spouse and $0 for the taxpayer.  Whats your thoughts?

Second question:  They've already filed their return as MFJ.  Per IRS, you can change filing status from MFJ to MFS as long as they do so before April 15th. Is this done via superseded returns?

Thanks,

[qbteachmt]

2019 = meaningless now; that was for Advance payments. Tax filing 2020 is all that matters for EIP 1 and 2. The IRS guesstimated on 2019 or 2018 tax info, which is all they had on file at that point.

And the payout for EIP 3 is driven by what the IRS already knows. If there is no tax return filed and processed already for 2020, there is only 2019 to base it on.

[TaxGuyBill]

Yes to everything, including the 2020 credits (the 2021 income threshold is lower than the 2020 income threshold).

Be aware that a superseding Form 1040 can not be e-filed, it will need to be filed by mail.

[Hawkins1]

Understand.  I'll advise to file two superseded returns - one for taxpayer, one for spouse.  Do you have any experience allocated the refund they already received from filing the 2020 return?  My understanding is they'll need to allocate the refund already paid out based on the MFJ return to at least one of the returns but could be both.

[mm1]

Yes you can amend the 2020 return to married filing separate and the lower earner can qualify for the stimulus payment. However, as you are aware, this could mean more income taxes on both taxpayers that would outweigh any stimulus received. Note that the higher earner claims the children under the tiebreaker qualifying child rules so lower earner would not be able to use them on his/her return. 

[Hawkins1]

My understanding was that the tiebreaker rule only applies when the two parties can't agree who should claim the children.  In this case, there would be consensus among taxpayer and spouse that the spouse would claim both children.  Does that make a difference here?

Also, I want to be very careful in words.  You mentioned one can "amend" however, I believe we want to supersede.  There would be a difference.  For reverting from MFJ to MFS prior to original due date, I believe supersede is the right answer?  

[BobKamman]

The advance payment of EIP#3 will be based on return processed by IRS by July 15.  If the deadline is extended, the cutoff date can be as late as September 1.  Otherwise, the credit has to be claimed on the 2021 return.  Might be best to wait for that one, if you know how much income to expect. I wouldn't expect IRS to process superseding returns by July 15.  

[Hawkins1]

Very true point.  One superseded return filed in the past took 11 months to process.  Perhaps it's better to advise giving up on the Stimulus Payments 1 and 2 and shoot for one based on 2021.  

[BobKamman]

An amended return is a superseding return if filed by the due date of the original return. A superseding return is an amended return that is filed by the due date of the original return.   It's tax season, we don't have time to discuss potatoes and tomatoes.  

[Hawkins1]

No intention of an argument.  The point of my question was an amended return uses the 1040-X.  A superseded return does not use a 1040-X and you simply write "Superseded Return" at the top of the return.  I didn't think of these as one in the same. 

[BobKamman]

Where did I say argue?  But I believe the expression is "one and the same."  You can use a 1040-X for a superseding return,  and you don't have to write anything across the top of it.  In this situation, though, it's probably easier for everyone to prepare two oriiginal returns and do IRS the courtesy of letting them know that they already received a joint return.  Remember they work for you, you don't work for them (although they have succeeded in turning most of us into data-entry clerks).