The Stimulus Payment and Other Clarifications
Frequently Asked Questions
On Friday March 27, 2020 Congress sent to President Trump and he signed a massive 880 page plus bill called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The ACT is a compilation of various stimulus related activities for individuals and business to help the economy recover from the devastating effect that the Coronavirus pandemic is having.
The cornerstone of the ACT is the pending stimulus checks that the government will be sending out to taxpayers. This article is dedicated to this part of the ACT. While I have tried to put together a clear and concise overview there are still some issues that are unclear. As more is learned about the details, I will do my best to keep everyone informed.
What are these payments? These payments being sent to taxpayers that meet certain income qualification based upon filing status. Generally, a single filing taxpayer (who cannot be claimed as dependent of another taxpayer) with adjusted gross income of $75,000 or less will received a $1,200 payment from the government. A married filing jointly taxpayer with adjusted gross income of $150,000 or less will receive a $2,400 payment. Taxpayers filing as head of household with adjusted gross income of $112,500 or less will received a $1,200 payment. In addition, for each qualifying child, there will be a $500 payment.
My income is greater than the aforementioned limits what happens? If you are a single filing taxpayer and your adjusted gross income is greater than $75,000 your payment will be reduced $5 for every $100 over $75,000. If your adjusted gross income is greater than $99,000 you will not receive a stimulus payment.
If you are a married filing jointly taxpayer and your adjusted gross income is greater than $150,000 your payment will be reduced $5 for every $100 over $150,000. If your adjusted gross income is greater than $198,000 you will not receive a stimulus payment.
If you are a head of household taxpayer (generally a single parent with children) and your adjusted gross income is greater than $112,500 your payment will be reduced $5 for every $100 over $112,500. If your adjusted gross income is greater than $136,500 you will not receive a stimulus payment.
What is a qualifying child? A qualifying child is your dependent child who is under 17 years of age. It is unsure what will happen to your child payment if your child should turn 17 after 2018. The IRS does have the data to calculate your child’s age in 2018 but it is unknown if they will just be adding a year to your child’s age on your 2018 return or not. Based upon the program in 2008, if a stimulus check was larger than it should have been, there was no way to pay back the extra money. Currently it is unknown the IRS position on this.
What if I had a child in 2019, but I haven't filed my 2019 return yet? If you had a baby last year, but you haven't filed your 2019 return, you might be worried about losing $500 because the IRS is not yet aware. If you have a child now that is not reflected on your 2018 return, you will be able to account for the child when you file your 2020 return next year and get the $500 credit. In fact, if your stimulus check is less than what you are entitled to receive for any reason, you can make up the difference with an extra tax credit on your 2020 return.
What tax year is the basis for my income? To understand this first it is important to understand that this payment is an advancement of a new credit on your 2020 tax return. Since the 2020 return cannot be filed yet, the government is going to use your 2019 tax return if you filed. If it has not been filed yet, the government will use your 2018 tax return.
How will I get paid? When you filed your latest tax return the government will send you the payment in the same form that you received your refund (either check or direct deposit). If your banking information has changed since you filed the tax return, the government will mail out a check once they receive a “rejection” notice from the bank on the payment.
Are the checks taxable? It appears that these checks will not be taxable. But there is a catch. These payments are an advancement of a credit that you will be receiving on your 2020 tax return. It is that income that will really determine if you were eligible for this advanced payment. If you receive the payment but may not have qualified since filing your 2020 tax return what will happen to that payment is still unknown as we are waiting for IRS guidance on this. What is known if that you did not get the payment for whatever reason but did qualify or if the payment amount you received is lower than what you should get that will be adjusted when you file the 2020 tax return.
When will you receive these payments and what if my address has changed? The goal is for the payments to start going out the week of April 6. Based upon history when the government last did this in 2008, those payments went out in batches and took as long as eight weeks for all the payment to be made. Most experts believe that the week of April 6 is too ambitious of a timeframe and that the middle to the end of April may be a more realistic. Within 15 days of mailing your check (or directly depositing it into your bank account), you will receive a notice in the mail indicating the method of payment, the amount of payment, and an IRS phone number to call if you didn't receive your payment. Both the payment (paper check) and notice will be mailed to your last known address the IRS has on file. If you have recently moved, you should file a Form 8822 with the IRS and a change of address notice with the U.S. Postal Service. This will ensure correspondence and payments from the IRS will be sent to your new address.
I only get Social Security and I don’t file a tax return; do I still qualify? People on Social Security are eligible to receive the stimulus payment as long as their total income does not exceed the limit. As long as you received an SSA-1099 form (the Social Security benefit statement), the federal government will be able to send a payment via the usual way you get your Social Security payment. Retirees and people on disability are both eligible for the special payment.
How many Americans will get these payments? It is estimated that 83% of tax filers or 125 million people will receive a stimulus payment.
Do I have to have a Social Security number to get a check? You must have a Social Security number to receive a stimulus check. Your spouse and any child receiving $500 must also have a social security number. An individual taxpayer identification number (ITIN) is not good enough.
There are two exceptions to this rule. First, an adopted child can have an adoption taxpayer identification number (ATIN) instead of a Social Security number. Second, for married members of the U.S. armed forces, only one spouse needs to have a Social Security number.
Will the IRS take my check if I owe back taxes? Stimulus money is generally not subject to reduction or offset to pay back taxes or other debts owed to the federal government.
Other Clarifying Items
Since the writing of the four previous articles here are a few more clarifying items that have been released
Estimated Tax Payments: The first, second and third estimated tax payment for 2020 with due dates of April 15th , June 15th and September 15th are now due October 15th. The fourth payment remains unchanged at January 15, 2021.
Early Withdrawal Penalty: For individuals affected directly by COVID-19, the 10% early withdrawal penalty is waived for IRA and workplace-based retirement plan distributions up to $100,000 in 2020. The tax due on the distribution is payable over three years. The ability to repay the distribution is also over the next three years. This relief applies for anyone diagnosed with COVID-19, who has a spouse or dependent diagnosed, or who experiences financial hardship as a result of being quarantined, laid off or having reduced work.
Required Minimum Distribution Rules (RMD): The Act temporarily suspends the RMD for 2020.
Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email to me. Also, they can be mailed to my P O Box.
As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.
Harry E. Hunter
Hunter Consulting, Inc.