On March 27, the House of Representatives passed the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. This legislation included many provisions intended to improve cash flow for taxpayers impacted by the COVID-19 pandemic. One such provision is the Recovery Rebate Payments for individual taxpayers:
Recovery Rebate Payments are issued as follows:
The rebate amounts or “stimulus checks” are advance refunds of credits against 2020 The advances are equal to $1,200 for individual and head of household filers, or $2,400 for joint filers, with a $500 credit for each child. The amount of each rebate is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed), and the phaseout begins at:
- Single filers – $75,000; completely phased out for filers with adjusted gross income over $99,000
- Heads of Household – $112,500; completely phased out for filers with adjusted gross income over $136,500
- Joint filers – $150,000; completely phased out for filers with adjusted gross income over $198,000
A qualifying child is a dependent claimed on the tax return under the age of 17 that meets certain support and relationship tests:
- They must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child.
- The child must have lived with you more than ½ of the year and must not have provided more than ½ of their own support
- The child must be a citizen or resident alien
At present, no date has been published whereby the IRS will look at returns in their system to determine whether the base year for the rebate will be the 2018 or 2019 tax return.
The credit will be calculated on the 2020 return and compared to the rebate amount paid. If the credit calculation in the 2020 return is higher than what was paid, an additional refundable credit will be generated. If the credit calculation is lower than what was paid, there is no change. Therefore, taxpayers will only have possible upside from the 2020 calculation. The 2020 credit may calculate higher than the rebate recovery payment received based on a previous tax year based on various factors such as the taxpayer has another child or adjusted gross income is lower.
Please contact us with questions regarding these rebate checks.