Last week, we gave a brief overview of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The new law includes funds for hospitals, extended unemployment insurance, and help with lending for corporations and interest-free loans for small businesses.
Of course, stimulus payments are probably the most widely-discussed feature of the CARES Act. As of this writing, the IRS website calls these payments economic impact payments, and some technical publications call them advance rebates. All these terms refer to what the press has been calling stimulus checks. Here’s an overview of what we know about these payments so far.
The amount of the stimulus payment depends on the taxpayer’s filing status, Adjusted Gross Income, and how many children under age 17 are reported on the taxpayer’s return.
While each qualifying child increases the taxpayer’s stimulus payment by $500, like the payments for the adults, those for the children will be eliminated if the parent’s income is great enough.
The payment will be based on the taxpayer’s 2019 return (or, if it’s not been filed, the 2018 return), but if the 2020 return shows the taxpayer would have be entitled to more under the formula, they’ll receive the additional amount when that return is processed. If your income increases in 2020, there will be no claw-back—you won’t have to return any stimulus payment you receive. (There are some situations where a taxpayer may need to pay back a portion of their payment in the event of divorce or death of one of the spouses).
Taxpayers whose returns show AGI in excess of the phase-out amounts will not receive stimulus payments.2
Direct deposit or check
The IRS will send the payment to the bank account you have used for direct deposit or debit on your tax return. The Department of the Treasury is creating an online portal where individuals can update their banking information to receive a quicker direct deposit rather than a mailed check. Be careful using that website! Make sure you’re on the actual site for that purpose, as this is a perfect chance for scammers to try to steal your banking information.
If you usually pay or receive refunds by check and do not make this update, the Treasury will mail your check to the address on your most recently filed return.2
If you don’t usually file a tax return
Social Security recipients will automatically receive stimulus payments, even if they don’t file a tax return. Others, like low-income taxpayers, may need to file a simple tax return (but still will not owe tax) in order to receive their check.2 The IRS has created a webpage dedicated to the Coronavirus and will be updating it as their policies develop.
The payment isn’t taxable income
The stimulus payment is actually a refundable tax credit on your 2020 tax liability, but sent in advance of the 2020 tax return.3 It is not taxable income.
The CARES Act appears to be taking a streamlined approach, and while we expect many payments to go smoothly, we would not be surprised if there are some hiccups. As is the case with the COVID-19 pandemic itself, the full effects of the CARES Act (and additional anticipated legislation) will only be seen in future weeks and months. Clients having difficulty with their stimulus payments should contact us—we expect there will be further clarifications about how the program functions.
If I Usually Do Not File a Tax Return, How Can I Receive a Check?
Those who usually do not file a tax return, including low-income taxpayers, senior citizens, and Social Security recipients, will need to file a simple tax return (but still will not owe tax) in order to receive their check.2 The IRS has created a special page dedicated to the Coronavirus and will be updating it with next steps on how to do this soon.