Federal Stimulus FAQ: the CARES Act

This evening, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), ending a whirlwind two-week run of back and forth between the House and Senate. With the law comes much needed relief for many taxpayers in the form of cash payments from the government. What follows is a brief FAQ on the major points.

Note: This FAQ is written for individual taxpayers. For a review of the provisions of the CARE Act as they relate to small business, I recommend this article from Forbes. Small business owners can also click here to read about the FFCRA.

Who is eligible for stimulus checks?

US taxpayers with social security numbers, residing anywhere in the world, will receive checks depending on their income (see below). Those with ITINs will not be eligible. The IRS will calculate your payment based on your 2019 tax return, if already filed, or your 2018 tax return if you have not yet filed this year. Also, for elderly and disabled people whose only income is Social Security benefits, the IRS will pull information from your SSA-1099, if no tax returns are filed.

How much will taxpayers receive?

The amount taxpayers will receive today will depend on their 2019 income (if already filed), or 2018 if not. The end amount taxpayers will receive will ultimately depend on their 2020 income.

The important figure here is adjusted gross income — Line 7 on the 2018 Form 1040, or Line 8b on the 2019 Form 1040. Taxpayers under the phaseout limits will be eligible to receive a payment of $1,200 ($2,400 for MFJ), plus an additional $500 for each child under the age of 17. Phaseouts start at $75k of income for singles and $150k for married couples, and the rebate decreases by $5 for every $100 in income in the phaseout range. See the chart below for some common rebate amounts:

Rebate amounts according to Adjusted Gross Income
No Children With Children
AGI Single MFJ            MFJ            1 Child             MFJ               2 Children               MFJ                3 Children
           50,000          1,200          2,400          2,900            3,400             3,900
           75,000          1,200          2,400          2,900            3,400             3,900
           90,000             450          2,400          2,900            3,400             3,900
         100,000          2,400          2,900            3,400             3,900
         150,000          2,400          2,900            3,400             3,900
         160,000          1,900          2,400            2,900             3,400
         175,000          1,150          1,650            2,150             2,650
         198,000             500            1,000             1,500
         200,000             400                900             1,400
         210,000                400                 900
         225,000                 150
         250,000

**Note: This chart is not exhaustive of every scenario. Click here to use a free calculator provided by the Washington Post.

Is this a tax credit or free money?

This stimulus check is essentially a 0% interest advance from the government for a credit on your 2020 tax return. On your 2020 tax return, to be filed in 2021, the credit will be calculated based on your 2020 income, with any amount additional amount taken as a credit then.  For example, if you are above the phaseout limitations (discussed below) to receive an advanced payment now, but your income in 2020 is less than was reported on your 2018 (or 2019) tax return, then you will receive a credit to offset your 2020 tax liability when your 2020 tax return is filed.

Less clear is the treatment of a taxpayer whose income significantly increases from 2019 to 2020 — a person who gets a rebate check now, but no longer qualifies for the credit when filing his/her 2020 tax return. The CARES Act provides no mechanism for income recognition, so it is possible that the credit may not have to be paid back.

Some news outlets have already begun reporting that if your income is higher in 2020, you will not have to reduce the amount of the credit. Despite no explicit guidance on this in the CARES Act,  I don’t believe this treatment is correct. I expect the IRS to release guidance related to recapturing any advanced amount in excess of the actual credit allowed on the 2020 tax return sometime this summer.

Will the stimulus money be taxed?

No. The stimulus money is not considered income. These are considered a credit towards your 2020 taxes. When a taxpayer’s 2020 taxes are filed, these advance payments might be adjusted upward or downward as with any other non-refundable credit.

Who will not receive stimulus checks?

  • Anyone without a social security number
  • Non-Resident Aliens
  • Households do not receive money for adult dependents, such as elderly relatives or adult children with disabilities.

How do I sign up?

You don’t. There’s no sign up. The payments will be automatic for those who qualify.

You do not need to call the IRS. See the special website the IRS created for coronavirus updates.

How will I receive the money?

If you have received a tax refund via direct deposit in the past, the IRS has your bank account information and once details are finalized, they are expected to direct deposit the payments to those eligible.

If not, the IRS will mail a check to your “last known address”. I  expect the IRS to release additional information around this item, and a help center to contact if the money does not arrive. The details have not been finalized yet.

When will I receive the money?

Payments will begin to be processed in 3 weeks if the IRS has your  direct deposit information on file. Paper checks will inevitably take longer, but should arrive sometime this summer. According to the law, the IRS has until 12/31/2020 to make all necessary payments.

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