Understanding The Stimulus Checks
Updated: Jul 6, 2020
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This is a $2 trillion economic relief plan designed to provide assistance to over 90% of Americans. Experts in our industry are still trying to understand many of the specifics of this bill and how it applies to unique situations. We expect to receive more clarity as time goes on.
We will be sending out a series of summaries that address the multiple features of the bill. The summary below focuses on the stimulus rebate checks.
If you have questions on how the bill applies to you, please reach out to one of our team members.
Stimulus Recovery Rebates
What is the recovery rebate? The rebate is technically an advance on a tax credit that will be available in tax year 2020. In other words, Congress is going to provide upfront payment that is an estimated tax credit for 2020, based on a taxpayer’s most recently filed tax return. They will use your 2019 tax return, and if it has not been filed, they will use your 2018 tax return. To note, an important question being asked is, by what date must my 2019 tax return be filed in order to ensure that my 2019 tax return is used? There is currently no information available on a “drop dead date” for 2019 tax return filings. If you did not file a 2018 tax return, we recommend filing a 2019 tax return as soon as possible. Otherwise, you can receive the tax credit when your 2020 tax return is filed. This will not be considered taxable income. It will not affect unemployment benefits.
How much will I receive? The below amounts are subject to income phase out limitations, listed below.
Individuals will receive $1,200.
Married couples will receive $2,400 ($1,200 x2 for each person in the couple).
Individuals/couples can also receive $500/child under the age of 17 who was claimed as a dependent on their tax return. If the child is age 17 or older, they do not qualify.
Important to note is that adult dependents, such as college students who are still claimed as dependents by their parents, are not eligible to receive a recovery rebate. Their parents will also not receive a recovery rebate for claiming them.
Below are the income (AGI) phase out limits. For every $100 over the AGI income limit listed below, your total recovery rebate will be reduced by $5.
$150,000 for taxpayers who file Married Filing Jointly
$112,500 for taxpayers who file as Head of Household
$75,000 for taxpayers who file as Single or Married Filing Separately
Example A: A single mom with a 10-year-old dependent child filed as Head of Household in 2018 and has not yet filed her 2019 tax return. Her AGI in 2018 was $100,000. She will receive $1,700 ($1,200 + $500).
Example B: A couple filing jointly has an AGI of $151,000 and 2 dependent children under age 17. They will receive $3,350. Their total recovery rebate will be reduced by $50. Their rebate calculation is $2,400 + ($500 x 2) – ($151,000-$150,000)/100 x 5 = $3,350.
How do I receive the recovery rebate?
Taxpayers receiving Social Security benefits will receive their rebate via direct deposit into the account where their Social Security benefits are direct deposited.
If you do not receive Social Security benefits, the IRS will use the direct deposit account on file.
If there is no direct deposit account on file, or your bank account is closed, the IRS will send you a check in the mail.
According to the bill, you will receive a paper notice in the mail a few weeks after your payment has been disbursed. That notice will contain information about where the payment was sent. At that point, if you are unable to locate the payment, there will be an IRS phone number on the notice for you to call.
If you have recently moved, we encourage you to update your address with the IRS by completing and submitting IRS Form 8822 as soon as possible.
What if there has been a change in tax situation between the most recently filed return
(2018 or 2019) and 2020? This is a limitation in the relief package, because the rebate is based entirely on your prior tax year situation.
If family/tax changes have occurred that are not documented on the most recently filed tax return (i.e. divorce, death, etc.), the rebate provided will be trued up on your 2020 tax return.
If your 2019 tax return, once filed, will reflect the desired change, such as a birth in 2019, the advice is to file your 2019 return as quickly as possible to attempt to receive the $500 for an additional dependent.
What if my income on my most recently filed tax return (2018 or 2019) was low but my
2020 income is expected to be higher than the phase out threshold? Will I have to pay the rebate back?
You will still receive the rebate based on your most recently filed tax return. You will not need to pay it back in 2020.
What if my income on my most recently filed tax return (2018 or 2019) was too high to receive the rebate, but my 2020 income was affected by the coronavirus such that my 2020 income is low enough to qualify me to receive a rebate?
You will still receive the recovery rebate, but it will be received when you file your 2020 tax return, in early 2021. This is one of the flaws of the package. People who may need the extra funds now, due to how their income was affected in 2020 only, will not be able to receive these funds until they file their 2020 tax return.
When will I receive my rebate?
It’s not clear. Treasury Secretary Steve Mnuchin has expressed a plan to send these out to Americans in the next 3 weeks, and the President has echoed a similar timeline. However, if we look at historical instances of the government sending stimulus checks to Americans, it has taken several months. There is an argument that with today’s enhanced technology, the timeline could be faster, but it is widely known that the IRS does not utilize updated technology and runs on antiquated systems.
Tax Deadline Updates
State of Ohio Extends Tax Filing & Payment Deadline to July 15 Ohio announced last week that it will extend the state income tax filing and payment date to July 15. Individuals required to make quarterly estimated payments will also have additional time to make first and second quarter payments. Payments normally due on April 15 and June 15 will now be due on July 15. Ohio's filing and payment extension applies to School District income tax as well. Ohio Municipalities Extend Tax Filing & Payment Deadline to July 15
In line with guidance issued by the IRS and Ohio Department of Taxation, the deadline to file and pay city income tax will be extended to July 15. City returns are normally due April 15. The city will not assess penalty or interest amounts on payments during the extension.
The filing extension and waiver of penalty and interest will apply to individuals filing the municipal (including Columbus) individual income tax returns for tax year 2019. Individuals required to make quarterly estimated payments will also have additional time to make first and second quarter payments. Payments normally due on April 15 and June 15 will now be due on July 15.
More Details on the Stimulus Package
We plan to be in touch with further information on the other provisions of the CARES Act, including expanded unemployment coverage, small business relief, student loan repayment changes, IRA withdrawals requirement adjustments, and more.