Individual Stimulus Payments (Section 2201 of CARES Act)
On March 27, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is aimed at providing financial relief for the economic downturn caused by the Coronavirus pandemic. The headliner of the CARES Act is the individual stimulus payment, or as it’s officially titled, the “2020 recovery rebate for individuals.” Below are some common questions and answers related to these payments.
How much are these payments going to be?
- Each taxpayer will get $1,200, joint filers would get $2,400
- Each taxpayer will also get $500 per qualifying child (16 years old or younger), with no limit on the number of children
- High-income households won't qualify for the full recovery rebate of $1,200 per adult and $500 per child. However, this isn't an “all or nothing” rebate. Income phase-out’s start at $75,000 for single filers and $150,000 for couples filing jointly. This is adjusted gross income (AGI), not taxable income - so before your standard or itemized deductions. You’ll see your number on line 8(b) of your 2019 Form 1040 (line 7 of your 2018 Form 1040). The amount of your check is reduced by 5% of your income over the phase-out. So, your rebate amount decreases $5 (5%) for every $100 of additional income over the phase-out limits.
- See charts at the bottom of the page to get an idea of what your rebate might look like.
Who is eligible for these payments?
- Generally, an eligible individual is any individual (with a valid Social Security Number) excluding (1) nonresident aliens, (2) individuals who can be claimed as a dependent by another taxpayer, and (3) an estate or trust.
So how does this work? Do I need to file anything to get my check?
- Generally, you won’t need to do anything. The Treasury will advance your check based on your most recently filed tax return. According to the new law, the IRS is going to look first to your 2019 tax return to compute the payment. If no 2019 return has been filed, however, the IRS will grab your 2018 return instead. (If you receive Social Security and don’t need to file a return, the IRS will send you a payment based on your Form 1099-SSA).
Will this affect my “normal” 2020 tax refund?
- Technically, the checks are advances of refundable credits. A refundable credit means that you can take advantage of the credit even if you do not owe any tax. Unlike with a nonrefundable credit, if you don't have any tax liability, the "extra" credit is not lost but is instead refunded to you.
- In this case, the stimulus check acts like a refund that you get in advance based on your 2020 income. That’s confusing because you don’t know how much you’re going to earn in 2020, but it’s why the IRS is using earlier returns. But this advance payment on the credit does not affect your “normal” tax refund for 2020: you won’t lose out on your expected tax refund for 2020 with the check.
What if you don’t get the right amount?
- The refund is determined based on the taxpayer’s 2020 income tax return but is advanced to taxpayers based on their 2018 or 2019 tax return, as appropriate. If an eligible individual’s 2020 income is higher than the 2018 or 2019 income used to determine the rebate payment, the eligible individual will not be required to pay back any excess rebate. However, if the eligible individual’s 2020 income is lower than the 2018 or 2019 income used to determine the rebate payment such that the individual should have received a larger rebate, the eligible individual will be able to claim an additional credit generally equal to the difference of what was refunded and any additional eligible amount when they file their 2020 income tax return.
Is my check taxable?
- No, this is not taxable income.
How and when will you receive your payment?
- According to Treasury Secretary Steven Mnuchin, households should begin receiving their rebate in late April or early May.
- Your two ways to receive your rebate are by direct deposit or a paper check. The IRS will use the information from your tax return to send the direct deposit or physical check.
- Within 15 days after they make the payments, they will send out a letter to each household. It will include the amount of the payment and how it was made. The notice will also include a phone number for the appropriate point of contact at the Internal Revenue Service (IRS) if you didn’t receive the payment.
These new rules can be complicated and at times hard to understand. We encourage you to seek out advice before making a decision. The GMP staff are up to date on the new rules and are available to help guide you through the complicated details that could benefit you and your business. Click here to set up a time to talk with a member of the GMP staff.
