The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) is now law after being passed in both the House and Senate and signed by President Trump on March 27, 2020.
TIMING AND METHOD OF PAYMENT
There is doubt that the IRS will be able to issue these payments quickly. In 2008, it took the IRS many months to issue these payments, so getting them out within 3 weeks seems like a lofty goal. We will see. If you used direct deposit for your refund, the IRS should deposit the money directly into your bank account of record and this should be a faster process than paper checks. If you owed or did not use direct deposit, you will receive a physical check in the mail.
INCOME PHASEOUT
Taxpayers who earn under the income phaseout will receive $1,200 each and $500 per child. The income phaseout will be based on Adjusted Gross Income, which means your income before your standard, itemized or qualified business income deductions.
Single: $75,000
Joint: $150,000
Head of Household: $112,500
The stimulus payment is reduced by 5% of the amount of Adjusted Gross Income above these limits. This means if you are $10,000 above these limits, your stimulus payment will be $500 lower than the full payment.
REFUNDABLE CREDIT
The stimulus payment is actually a refundable credit for the 2020 tax return. A refundable credit is a credit that is paid to a taxpayer whether or not they have any tax due. It can be refunded even with zero tax assessed.
Since the 2020 tax returns are not due yet, the IRS will base the stimulus payment on your 2019 tax return. If your 2019 tax return is not filed yet, they will use data from 2018 to determine your payment.
However, the stimulus payment will ultimately be based on your Adjusted Gross Income on your 2020 tax return. If you do not qualify for the credit based on your 2018 or 2019 tax returns but your income in 2020 will be low enough to receive the payment, you will receive it as an additional refund or reduction of tax due on your 2020 tax return.
We don’t know yet if you will have to repay the credit if your income is above the limits on your 2020 tax return. Sources are conflicted on this point. We will need to wait for official IRS guidance before we know for sure.
IF YOUR INCOME IS BELOW THE LIMIT FOR 2018 AND 2019
There is no rush to file a 2019 tax return to get the credit. Your income for 2018 will allow you to receive the maximum payment.
IF YOUR INCOME WAS BELOW THE LIMIT IN 2018, BUT ABOVE THE LIMIT IN 2019
You may want to consider delaying sending your tax return in until the payments are issued. Since we don’t know yet if you will have to repay the credit in 2020, it may benefit you to wait. We can still prepare your tax return for 2019, but can hold off on transmitting to the IRS until you receive your stimulus payment.
IF YOUR INCOME WAS ABOVE THE LIMIT IN 2018, BUT BELOW THE LIMIT IN 2019
We suggest you file your 2019 tax return sooner rather than later so you can receive your stimulus payment. From what we understand, you will receive your payment once the IRS processes the return and determines your income for 2019 will qualify you for a payment.
OTHER DETAILS
These payments will be nontaxable income. The IRS will not use these payments to offset past due tax debt or installment payments, but they may be reduced to offset past due child support.