Background of CARES
Millions of Americans have confusion with regard to the Stimulus Credit. They have already received their economic impact payments authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. If you have not received a payment or received an amount larger than you anticipated, you may be looking for some answers. But first, a little background on the payments:
Is the Payment a Refundable Credit?
The payment is actually a refundable credit that will be computed on your 2020 tax return based upon your 2020 family composition and adjusted gross income (AGI) that is being paid in advance.
How much is the CARES Credit for Each Person?
The credit is $1,200 for each individual other than dependents.
What is the stimulus credit for each child?
Each individual (or married couple) with a dependent child under the age of 17 will receive an additional $500 for that child. There is no additional $500 credit for children 17 or over or for other dependents.
What must my earnings be to qualify for the payments?
The payments are meant to assist lower-income individuals and families, so the amount of the payment is reduced for higher-income individuals. The reduction begins when a single individual’s AGI reaches $75,000 ($150,000 for married couples). For those that file as head of household, the reduction begins at $112,500. Payments are reduced by 5% of AGIs exceeding these thresholds.
Do I need a Social Security Number to Receive the Stimulus Credit?
No payment will be made to someone without a Social Security number.
How Does the IRS Know How Much to Pay in Advance?
If this refundable credit is based on a 2020 tax return that won’t be filed until next year, how does the IRS know how much to pay in advance? Good question! The purpose of these advance payments is to quickly get money in the hands of those who need it during this crisis. The government looks for a way to estimate the advance payments. The fastest method is to base the payments on family composition and income from 2018 or 2019 tax returns. For those who haven’t yet submitted their 2019 returns, there could be questions down the road.
Economic Impact Payment Table
You can use the table below to compute what your advance payment would be based upon your filing for 2019 or 2018 tax return. Then you can determine what the credit will be on your 2020 tax return.
ECONOMIC IMPACT PAYMENT
Year on which the payment is based (2018, 2019 or 2020):
|LN1||Enter your AGI(1)|
|LN2||If you filed jointly with your spouse, enter $2,400; otherwise, enter $1,200|
|LN3||Number of dependent children under the age of 17|
|LN4||LN3 times $500|
|LN5||Tentative payment: LN2 plus LN4|
|LN6||Enter the amount that corresponds to the filing status you used on the tax return:
|LN7||Subtract LN6 from LN1 (but this line should not be less than zero)|
|LN8||LN7 times 5%|
|LN9||Economic impact payment (LN5 minus LN8, but not less than zero)|
(2) MFS = married filing separately
In what form will the stimulus money come to me?
It depends on where the 2018 or 2019 tax return resulted in a refund. Then what it includes the direct deposit information. At that point, the advance payments are direct deposited into the tax filers bank account on record. These direct deposits were made very early in the process. There have been hiccups in which bank account information had changed since the returns were filed, in which case those individuals have to wait for a check to be mailed later.
I divorced, who gets the stimulus check?
By now, you should begin to see where some problems might arise. Suppose you and your ex-spouse filed a joint 2018 return. Then you divorced each other in 2019 but haven’t filed your 2019 returns yet. Where will the joint payment go based upon the 2018 return?
What if I had a child since I filed my 2018 tax return?
Suppose you added a child to your family in 2019 but didn’t file the 2019 return in time. How do I get the money for my new dependent? After all, the payment was based on your 2018 return, right? Your payment will not include the extra $500 for your dependent child. We could go on and on with all sorts of scenarios that are creating unexpected results.
What Stimulus Provision is out there for Retirees who are not required to file a tax return?
These payments are due to more than just those who filed a 2019 or 2918 tax return. There are many Americans who are not required to file a tax return. They include:
- Retirees receiving Social Security (SS)
- Railroad Retirement, SS disability
- SS survivor’s benefits
- Veterans’ benefits
- The homeless, and
- Those who should file returns but have not.
To reach as many of those individuals as possible, the IRS is automatically making payments of $1,200 to recipients of Social Security or Railroad Retirement, SS disability, SS survivor’s benefits, and veteran’s benefits who have not filed a 2018 or 2019 tax return.
What About Spouses and Dependent Children? Are they entitled to stimulus money?
Of course, the IRS has no way of determining if individuals in these categories have spouses who are not receiving benefits or if they have dependent children under the age of 17. These individuals had the chance to provide their spouses’ to the IRS prior to payments being made. This is also the case for dependent children’s information. Unfortunately, the time to provide that information has passed. Where the IRS has direct deposit information, the payment will be deposited into the individual’s bank account. Others will have to wait for a paper check.
Those who are not in any of the previously discussed categories can provide their information to the IRS by using the non-filer tool on the IRS web site.
Will I receive a paper check if the IRS doesn’t have my bank information?
If the IRS does not have your direct deposit information, it has changed, or the bank rejected the IRS’ attempt to deposit the payment, you will receive the payment by check. The checks are being issued to the lowest-income individuals first, where the need is the greatest, followed by others with increasing incomes. Here is the estimated release schedule for the payments by check.
When can I expect my Stimulus payment in the mail?
SCHEDULED ECONOMIC IMPACT PAYMENTS VIA CHECK
|Adjusted Gross Income||Issue Date|
|Less than $10,000||April 24|
|$10,001 to $20,000||May 1|
|$20,001 to $30,000||May 8|
|$30,001 to $40,000||May 15|
|$40,001 to $50,000||May 22|
|$50,001 to $60,000||May 29|
|$60,001 to $70,000||June 5|
|$70,001 to $80,000||June 12|
|$80,001 to $90,000||June 19|
|$90,001 to $100,000||June 26|
|$100,001 to $110,000||July 3|
|$110,001 to $120,000||July 10|
|$120,001 to $130,000||July 17|
|$130,001 to $140,000||July 24|
|$140,001 to $150,000||July 31|
|$150,001 to $160,000||August 7|
|$160,001 to $170,000||August 14|
|$170,001 to $180,000||August 21|
|$180,001 to $190,000||August 28|
|$190,001 to $198,000||September 11|
What Happens if the IRS Does not Send me an Advance Payment?
This is usually the next big question. Well, all is not lost, because the payments, as explained earlier, are an advance on a refundable credit allowed on your 2020 tax return when it is filed in 2021. So, if you were short-changed on the advance payment, you will get your payment or any shorted amount as a refundable credit on your 2020 return.
What is the Basis for the 2020 Stimulus Credit?
However, keep in mind that the 2020 credit is based on filing status, dependent children under age 17, and AGI for 2020. Your former filing status is the basis for the advance payment. Also, children under age 17, and AGI for 2019 or 2018, which can create some substantially different results.
Of concern to those whose advance payment was too large is whether the excess will have to be repaid. The CARES Act that authorized this credit and the advance payments specifies that any amount by which the advance exceeds the credit computed for the 2020 tax return does not have to be repaid.
This Stimulus Credit is A Lot to Process, Ask Us Your Questions
As you can see, there are any number of variations that can impact how the advance payment was determined and how the credit is figured on the 2020 return, including marriage, divorce, births, deaths, emancipations, and AGI.
If you have questions, give Alex Franch at 781.789.7200. Here at Joseph Cahill and Associates/Worthtax we are accepting appointments to help you file your tax return. The tax filing due date is now July 15, 2020. Don’t wait, especially if you believe you will owe the IRS money. We invite you to our online scheduling tool to book your appointment now. Also, we have the capability to hold virtual engagements with you by way of our Client portal for Secure file sharing E-Signing Expert.