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Under CARES Act, YOU Get $1,200 and YOU Get $1,200…Maybe by Jeffrey M. Mutnik, CPA/PFS

Posted on March 29, 2020

COVID-19 recovery rebates are perhaps the most talked about provision of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The newly enacted law calls for the federal government to issue cash payments of as much as $1,200 directly to qualifying individuals.

As with most provisions of the tax code, the devil is in the details of how the IRS will interpret the law and apply it to taxpayers’ unique circumstances. Presently, there is no application form taxpayers must complete or file to receive this relief. Instead, the law calls for the IRS to administer this program based on taxpayers’ Social Security information on file as well as the tax returns individuals filed in 2018 and 2019.

Who Qualifies for a Recovery Rebate and How Much Will that Payment Be?

Eligibility for a recovery rebate is not dependent on a taxpayer’s filing status.  Rather, a single or married filing separately taxpayer can receive a stimulus payment of up to $1,200, while married couples filing joint tax returns can receive up to $2,400. An additional $500 payment is also available for each qualifying child who lives with the taxpayer.

The amount of these payments will begin to phase out, or decrease, when a taxpayer’s adjusted gross income (AGI) exceeds $75,000, or $150,000 for a married couple filing jointly. The benefit will phase out completely, and be unavailable, when AGI reaches $99,000 for an individual taxpayer or $198,000 for a married couple filing joint tax returns.

Technically, this stimulus payment is a 2020 tax credit based on 2020 income.  However, in the interest of accelerating the economic stimulus impact of these payments, the IRS will determine eligibility based on a taxpayer’s AGI for 2019 or 2018, whichever tax return was last filed.

To receive a stimulus payment, taxpayers must have a Social Security Number (SSN). Nonresident aliens are not eligible, and neither are persons that can be claimed as dependents on other individuals’ tax returns. If a Social Security recipient did not file a tax return for 2018 or 2019, the IRS may use his or her Form SSA-1099, Social Security Benefit Statement, to compute and pay the appropriate benefit due.

Planning Strategies

If you have not yet filed a 2019 federal income tax return, the IRS may rely on the information contained in the returns you filed for 2018 to compute the recovery rebate to which you may be entitled.

If the AGI you reported on your 2018 tax return exceeds the recovery rebate threshold but your 2019 AGI will allow greater benefits, you may consider filing your 2019 tax return now. For example, consider an engaged couple who filed two separate tax returns, both with single filing status, for 2018. One earned $100,000, which exceeds the recovery rebate AGI threshold, while the other earned $40,000. Combined, they would receive a stimulus payment of $1,200 between the two of them ($0 + $1,200). However, if they got married in 2019 with no change in income and they filed joint tax returns for that year, their combined AGI of $140,000 will allow them to collect the maximum benefit for a total of $2,400.

If you have not yet filed tax returns for 2018 or 2019, you may want to consider filing as soon as possible for the year that will provide you the most benefit. The safest and fastest way to receive a stimulus payment is via direct deposit from the government directly into your bank account.

Should your circumstances dictate that the maximum benefits are not received currently, (i.e., 2018 and 2019 AGI fully phases out the benefits), the balance will be available as a refundable credit on your 2020 tax return based on the same qualifications. If you are eligible for a stimulus payment based on your 2018 tax return but the bank information is not available to the IRS, you might determine if your 2019 AGI would reduce the amount for which you are eligible. If there is no impairment, you may consider filing the 2019 return now, including the appropriate direct deposit information. Otherwise you may need to determine if the impairment is worth getting funded earlier.

About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors + CPAs, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.

Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.