CARES Act with a catch
On the 27th of March the CARES Act (Law No: 116-136) granting each US citizen a $1,200 tax credit ($2,400 for those filing a joint return) to be paid to them as soon as possible. In addition, a $500 credit will be allowed for each qualifying child.
To receive this benefit your Adjusted Gross Income (AGI) must be below $75,000 ($150,000 if filing a joint return).
For those who have filed their 2019 return, your AGI can be found on line 8b of your Income Tax return (Form 1040). However, if you have not filed your 2019 Income Tax Return, your eligibility for the payment will be based on your 2018 return. Your AGI for 2018 can be found on line 7 of your return.
And yes, therefore, you need to keep your tax filings up to date to qualify. The IRS makes it abundantly clear in its new people first initiative that delinquent filers should get up-to-date with a Fresh Start. And while they are suspending certain field activities during this time, they still plan on continuing to pursue non-filers.
Of course, the devil is in the detail and, of course, Congress can never do something simple.
The law initially provides that the credit is to be treated as an advance payment against the individual(s) 2020 income tax liability. However, the legislation then provides that the amount that would be allowed in 2020 shall be allowed as a credit against the tax owed in 2019 and that such amount shall be refunded to the taxpayer as soon as possible.
The payment will be made electronically to the taxpayer’s account previously authorized by the taxpayer for the delivery of a tax refund.
The long and short of it is that eligible taxpayers should be getting a payment of $1,200 ($2,400 for individuals filing joint returns) in the not too distant future.
Update IRS clarification 2 April, 2020: The Treasury Department and the IRS clarified that Social Security recipients, who normally do not have to file an income tax return, will not now be required to file a return to receive the CARES Act $1,200 payment. The payment will be made directly into the same account that is used to pay their social security benefits. The complete announcement can be found here.
There are obviously a number of issues to be clarified by the IRS, for example, how will a taxpayer get a payment if no refund has been received in prior years.
On March 30th the IRS issued an announcement (IR-2-2—61) addressing a number of the uncertainties in the legislation which we have reprinted in full below.
Economic impact payments:
What you need to know
Check IRS.gov for the latest information: No action needed by most people at this time
IR-2020-61, March 30, 2020
WASHINGTON – The Treasury Department and the Internal Revenue Service today announced that distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people. However, some seniors and others who typically do not file returns will need to submit a simple tax return to receive the stimulus payment.
Who is eligible for the economic impact payment?
Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.
Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.
How will the IRS know where to send my payment?
The vast majority of people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.
For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed.
The IRS does not have my direct deposit information. What can I do?
In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail.
I am not typically required to file a tax return. Can I still receive my payment?
Yes. People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.
How can I file the tax return needed to receive my economic impact payment?
IRS.gov/coronavirus will soon provide information instructing people in these groups on how to file a 2019 tax return with simple, but necessary, information including their filing status, number of dependents and direct deposit bank account information.
I have not filed my tax return for 2018 or 2019. Can I still receive an economic impact payment?
Yes. The IRS urges anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return.
I need to file a tax return. How long are the economic impact payments available?
For those concerned about visiting a tax professional or local community organization in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020.
Where can I get more information?
The IRS will post all key information on IRS.gov/coronavirus as soon as it becomes available.
The IRS has a reduced staff in many of its offices but remains committed to helping eligible individuals receive their payments expeditiously. Check for updated information on IRS.gov/coronavirus rather than calling IRS assistors who are helping process 2019 returns.