The huge emergency coronavirus law will provide, “as rapidly as possible,” over 80 percent of American adults with money, many getting $1,200 under the CARES Act.
On Friday (March 27) Congress passed and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act. Also known as the CARES Act, better known as the massive $2.2 trillion pandemic relief law. The stated purpose of this 880-page law:
Providing emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic.
One of its major provisions is to provide most American adults a payment directly from the U.S. government. This is estimated to cost $290 billion, or about 13% of the $2.2 trillion total. This blog post discusses how much each person will receive, who will and will not, and other urgent details.
How Much Money?
This is probably the most straightforward part of this law, but it has some important twists and turns.
Every “eligible individual” will receive $1,200, if his or her adjusted gross income is no more than $75,000. If the adjusted gross income is more than $75,000, the $1,200 is reduced by 5 percent for any amount over $75,000. This means that individuals with an adjusted gross income of $99,000 or more will receive nothing.
If you file a joint tax return, the joint payment will be twice as high, $2,400. And your joint adjusted gross income can be twice as high, $150,000, for the two of you to receive the full $2,400. Income beyond that would reduce the amount paid by 5 percent of the amount over $150,000.
If you file your federal tax return as a “head of household,” the adjusted gross income trigger amount is instead $112,500. (This tax filing status is usually for single parents with children.)
In addition to the $1,200 (or less) per adult, you receive $500 for each “qualifying child.” (See the IRS’ Qualifying Child Rules.) In general, a qualifying child is any dependent of a taxpayer under the age of 17. So dependents aged 17 or older do not qualify for the $500 payments.
An example: a family of two spouses filing jointly, with two under-17 children, would receive $3,400: $2,400 + $500 + $500.)
Technically, the IRS is treating this money as an advance tax credit. It will not be considered taxable income on your 2020 tax return.
Which Year’s Income Counts?
Practically speaking, look to the adjusted gross income on either your 2018 or 2019 federal tax return. The 2019 amount will count if you’ve already submitted it, or likely will if you submit it very soon. Otherwise, look to your 2018 adjusted gross income.
Note: the IRS has postponed the usual April 15, 2020 deadline for submitting 2019 tax returns until July 15, 2020. (See our last week’s blog post about this.) So if it’s to your advantage to use your 2018 income, consider waiting to submit 2019 until after receiving this relief payment. On the other hand, consider filing your 2019 tax return quickly if your income went down, qualifying you for more money.
Under the language of the law it’s your 2020 income that actually counts because it’s a credit for this year. But of course, nobody knows for sure how much your 2020 income will be. So the law has the IRS use your 2019 or 2018 income amount.
So what happens if you get the relief payment but your 2020 income is higher and would have reduced the payment? Regardless, you don’t have to pay back any of the payment.
Who Is an “Eligible Individual”?
The main people who don’t qualify are “nonresident aliens” and “dependents” who can be claimed on someone else’s tax return.
Individuals on Social Security who have no other income and may not file a tax return are eligible. Individuals who have little or no income, or who receive federal benefits, are all eligible. There’s no minimum income requirement. The person just can’t qualify as a dependent for someone else and must have a Social Security number.
What If You Owe the IRS, a Federal Student Loan, or Child/Spousal Support?
With tax or student loan debt, it doesn’t matter. The IRS can’t set off the relief check against federal taxes or student loans you owe. This is according to Sen. Chuck Grassley, chair of the Senate Finance Committee.
“The only administrative offset that will be enforced applies to those who have past due child support payments that the states have reported to the Treasury Department,” he said.
What If I Have Other Questions?
The law leaves lots of details to be worked out by the IRS. It has a special webpage called “Coronavirus Tax Relief” where it will have updated information. As of our writing of this blog post, it says the following:
Stimulus payment checks: No information available yet, No sign-up needed
Instead of calling, please check back for updates.
Please also check back with us here on our website about the timing and other practicalities of these relief payments. The statute simply says that the Department of Treasury shall pay them “as rapidly as possible.” It will take at least three or four weeks, and maybe more. We’ll dig into these important details and tell you when we know more.
In the meantime, you can also call us, your bankruptcy lawyers. We are following this closely.