The Coronavirus has infected our life in many ways. Family and friends are sick, quarantined or under a stay-in-place order. The stock market has crashed. The kids are out of school. Restaurants and shopping malls are closed. More than three million unemployment claims were filed in one week. Enough of the cable news . . .
After a lot of talk and ten versions (one marked “final, final), Congress did something. President Trump signed into law on March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act, (the CARES Act, HR 748), a $2 trillion stimulus package to mitigate the impact of the COVID-19 pandemic.
The CARES Act provides stimulus payments of $1,200 for each individual and $500 for each child, defined by the child tax credit rules as under age 17. The stimulus payments are not available to those without an SSN, nonresident aliens, or adult dependents.
A client letter is included with this e tax alert to help you get information out to your clients — and maybe stop some phone calls, texts and emails on: How much do I get? What do I have to do? And when will I get the money?
Who and How Much?
Single. Individuals with AGIs up to $75,000 a year are eligible for the full $1,200 payment. The payment is reduced by $5 for every $100 in income above $75,000. The payment amount is entirely phased out at an AGI of $99,000.
MFJ. Married filing joint couples with AGIs up to $150,000 a year are eligible for a $2,400 payment. The payment is reduced by $5 for every $100 in income above $150,000. The payment amount is entirely phased out at an AGI of $198,000 (if the taxpayers have no dependent children). Married couples also will receive an additional $500 for every dependent child under 17 and are phased out of the payment at a slightly higher AGI.
Example – MFJ with no children. Keith and Norma are married filing joint. They have no dependent children. If they have AGI of $150,000 or less, they are eligible for a $2,400 payment. If they have AGI of $175,000, they are eligible for a $1,150 payment. At $198,000, they are entirely phased out of the payment.
Example – MFJ with two children. Chris and Pat are married filing joint. They have two dependent children under age 17. If they have AGI of $150,000 or less, they are eligible for a $3,400 payment. If they have AGI of $175,000, they are eligible for a $2,150 payment. At AGI of $218,000, they are entirely phased out of the payment.
HOH. Head of household filers with AGIs up $112,500 a year are eligible for the full $1,200 payment and an additional payment of $500 for each dependent child under age 17. The payment is reduced by $5 for every $100 in income above $112,500. Head of household taxpayers will also receive an additional $500 per dependent child under age 17. With no eligible children, a head of household filer is phased out at AGI of $137,000. With one eligible dependent child, a head of household filer is entirely phased out of the payment at AGI of $146,400.
Example. Head of Household- no children under 17. Heather has an 18-year-old high school senior living with her and qualifies as a head of household filer. If her AGI is $100,000, Heather’s payment is $1,200. Her dependent child does not qualify her for the additional $500 payment because the child is not under age 17.
Example. Head of Household- with one child under 17. If Heather’s dependent child is under age 17, her payment is $1,700.
Example. Head of Household- with AGI above the threshold. If Heather’s AGI is
$120,000, she is eligible for a partial rebate of $825 with no qualifying dependent child and
$1,325 with one qualifying dependent child.
Tax practitioner planning. The phaseout can be easily calculated using the Washington Post calculator.What Needs to Be Done to Get the Stimulus Rebate?
Nothing. The IRS will deposit the calculated amount directly into the individual’s bank account, using the AGI and the bank information on the 2019 tax return. If the 2019 return hasn’t been filed, the IRS will use the AGI and the bank information on the 2018 tax return. If there’s no bank information on the return, the IRS will mail a check.
Tax practitioner planning. Before you file the 2019 tax return (now due July 15), check to see if the 2019 AGI includes extraordinary income (sale of stock, sale of real estate, etc.) that might push the client’s income over the phase out threshold.When Will the Payments Arrive?
Direct deposits should be in the client’s bank account in about three weeks. Checks should start arriving in about six weeks.2020 Tax Return
Technically the stimulus rebate is a 2020 refundable tax credit. The payment received in the next few weeks is an IRS advance. Many clients will have less income in 2020 than in 2019 because of layoffs, reduced hours, and closed businesses. If the client’s payment was reduced by the AGI threshold in the calculation of the advance using the 2019 income, they’ll receive a credit on their 2020 return. If for some reason, they receive too much of an advanced payment, they do not have to pay the advance back on their 2020 return. (See the Senate Finance Committee FAQs.)A Few Answers to Your Client’s QuestionsWill I pay tax on my rebate payment? No.
We had a baby in 2019, but have not filed our 2019 tax return. Will we get a $500 rebate for our new baby? Yes, but not yet. If you haven’t filed your 2019 return, the IRS will make the payment based on your 2018 tax return, which is missing one dependent. When you file your 2020 return, the rebate amount is reconciled and you’ll receive the $500 credit for the baby. You can try to file your 2019 return right now. The IRS hasn’t told us the cutoff date they’ll use to issue stimulus payments. If it is the date of enactment (March 27, 2020), then filing after that date might not get you the extra $500 right away, but you’ll still get credit on your 2020 return.
Will Grandma, who doesn’t have enough income to file a tax return, get a rebate payment? Yes. The IRS will make a direct deposit of the rebate payment into her bank account using information from the Social Security Administration. The same will happen for an individual receiving SSI (Social Security disability).
Does my college student get a rebate if she worked and filed a 2019 tax return? No. Dependents over the age of 16, do not qualify for the rebate payment. If the college student is independent (and not claimed as a dependent on your tax return), she’ll receive a rebate payment.
I claim my mother on my tax return as a dependent. Will she get a rebate check? No. Dependents over the age of 16, do not qualify for the rebate payment.
I file my tax return using an ITIN. Will I get a rebate? No, the law specifically requires a social security number to qualify for the rebate.
I’m a US citizen living abroad. Will I get a rebate payment? Yes, as long as you have been filing a US tax return or are receiving social security benefits.
If I have a past due debt on my student loan and I owe back taxes, will my rebate be reduced? No, the CARE Act turns off nearly all administrative offsets that ordinarily may reduce tax refunds for individuals who have past tax debts, or who are behind on other payments to federal or state governments, including student loan payments.
Tax practitioner planning. Past due child support payments that the states have reported to the Treasury Department will reduce the rebate.
What should I do if I haven’t filed a 2018 or 2019 tax return? Technically since this is a 2020 refundable credit, the delinquent taxpayer can file in 2020 and get your rebate. But, we (and the IRS) will likely tell you to quickly get caught up with filing your 2018 and 2019 returns.
Tax practitioner planning. The IRS hasn’t told us the cutoff date they will use to issue stimulus payments. If it is date of enactment (March 27, 2020) then filing after that date might not get the taxpayer an advance on the 2020 tax credit.