Who Gets Them, How Much, Taxability?
Much has been written about the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Predictably, now that stimulus checks are being received questions arise as to who qualifies, what rebate amount to expect and the taxable status of payments.
Individual Direct Financial Subsidy
The $2-trillion stimulus package provides near-immediate financial assistance to households. The package includes a one-time tax-free payment of $1,200 for individuals, $2,400 for couples, plus $500 for each qualifying child. Rebates will only be issued to individuals with valid Social Security numbers. The Social Security provision applies to qualifying children as well.
Qualification for the rebate and the amount to be paid is based upon an individual’s 2019 return. If no
2019 return has been filed, the rebate will be determined based upon an individual’s 2018 return.
Most Americans will qualify with limitations for households that have income above specified thresholds. Specifically, the rebate is reduced by 5 percent of an individual’s adjusted gross income (AGI) in excess of:
• Single Individuals: $75,000
• Married Filing Jointly: $150,000
• Head of Household: $112,500
• Others: $75,000
There are no rebate/stimulus payments once AGI equals or exceeds:
• Single Individuals: $99,000
• Married Filing Jointly: $198,000*
• Head of Household: $136,500*
• Others: $99,000*
*Add $10,000 for each qualifying child under age 17.
And Now for Some Questions
The vast majority of questions from taxpayers concern taxability of the rebates and rules that tend to be enforced/interpreted with a degree of leniency. Some typical examples in mini-case-study form.
Couple’s 2019 AGI Exceeds $150,000: This married couple filed their 2018 joint return reporting $145,000 in AGI. In 2019, their AGI was above the $150,000 threshold … so they’ve held off filing their 2019 return.
Meanwhile, as expected, their $2,400 stimulus check arrives. What to do? Answer: They should of course file their 2019 return by the extended deadline … July 15, 2020. And, no, they are not required to refund the $2,400 even though their income surpassed the qualifying limit of $150,000. Lenient … yes!
Couple Has a Child Born in 2019: This couple has not filed their return for tax year 2019. Their stimulus check was calculated based on their 2018 return and their $2,400 check arrived as anticipated. But wait! While they have not yet filed their 2019 return, they welcomed their new child to the world this year. That means they qualify for $500 for their qualifying child … which they will receive when they file their 2020 return next spring.
Stimulus Check Received in Error: Things are changing at an unprecedented pace and the IRS continues to release additional guidance related to the CARES Act provisions as they pertain to the coronavirus pandemic. Changes in rules and/or their interpretation by the IRS happened between 2018 and 2019. That has resulted in the issuance of stimulus checks in error. If you believe your stimulus check was received in error, your answer will likely be addressed at this link, the Economic Impact Payment Information Center.
Note: Don’t ask, as many have, whether the rebates are really “advances” on 2020 taxes which must be repaid next year. They are not!
Tax Refund in 2020 – Effect on My 2019 Stimulus Check: A married couple filing jointly received their $2,400 stimulus check this year. What happens if I get a $400 refund when I file our 2020 return … do I owe the IRS $2,000, the difference between the stimulus check and my $400 refund? The answer is no. You will still receive the $400. The stimulus check amount received will be disregarded. You can only get additional amounts. No amounts previously paid will be reclaimed.
OK … you get the picture. There are many questions … more and more answered and more yet to be. Here is a list of scenarios from the IRS that can affect the economic impact payment being different than anticipated.
• You have not filed a 2019 tax return, or the IRS has not finished processing your 2019 return.
• Claimed dependents are not eligible for an additional $500 payment.
• Dependents are college students.
• Claimed dependents are parents or relatives, age 17 or older.
• Past-due child support was deducted from the payment.
• Garnishments by creditors reduced the payment amount.
• What if the amount of my Economic Impact Payment is incorrect?
Click here if you want to mount a do-it-yourself effort for more info from the IRS.
Blair + Assoc stand ready to help as needed. A phone call or email is all it takes. We’ll respond promptly.