In March and December 2020 all eligible US residents received US stimulus cheques. How do you treat those in Australian tax returns?
US Stimulus Cheques
For US purposes stimulus cheques are refundable tax credits and as such are not recognised in Australian tax returns. But don’t take our word for it. Seth Hertz of Expat US Tax will explain all this in much more detail. Here is what we learned.
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US Stimulus Cheques
Two sets of cheques. Two sets of legislation. Two dates – March and December 2020. Two support packages. But for tax purposes both the same thing.
Both US stimulus cheques are refundable tax credits in the US. If you haven’t received a cheque, you can claim the stimulus in your 2020 US return (Form 1040). The cheques are just a prepayment of the tax credit you are entitled to via your tax return.
Four Different Thresholds
The stimulus payments have four different thresholds – one for each of the four filing status in the US.
The US administration used the 2019 and for the payment in March, the 2018 tax information, since in March 2020 many of the US tax returns hadn’t been lodged yet for 2019. But all this is only preliminary.
In the end it all depends on your income in 2020. So if you didn’t receive a cheque, since your 2018 or 2019 income was too high. You can still qualify, if your 2020 significantly dropped thanks (or no thanks) to the pandemic.
First and Second Package
The first package was $1200 for an adult. $500 for a child. The second one in December was $600 for anyone whether it is an adult or a child.
Effect on Australian Tax Returns
If most of your income is in Australia, then these US stimulus cheques will have little effect on your tax position, since you pay your tax in Australia and just handa foreign tax credit to the US.
But if most of your income is in the US, then these cheques will effect your tax position in Australia, since the cheques will reduce the foreign income tax offset (FITO) you can claim. The cheques reduced the tax you pay in the US. And hence reduce your FITO in Australia.
So when you prepare an Australian tax return for a US citizen, you can ignore the cheques. They are neither income nor NANE.
Just look for the US tax ultimately paid in the US. That is the FITO you can claim in Australia.
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 18 February 2021