As a result of the CARES act, eligible taxpayers will receive an Economic Impact Payment (aka “stimulus” payment). The payment is an advance of a newly created refundable tax credit that will be reported on 2020 tax returns. Payments are expected to be distributed automatically in the upcoming weeks, and most taxpayers will not be required to take any action to receive a payment.

Payments will be deposited directly into the same bank account listed on a taxpayer’s 2018 or 2019 return. There will be a web-based portal for individuals to provide or update banking information, so individuals can receive payments immediately instead of waiting for checks to arrive in the mail.

Payments will be equal to the lesser amount of an individual’s 2020 net income tax liability, or $1,200 ($2,400 for MFJ taxpayers). For qualified taxpayers, the credit shall not be less than $600 ($1,200 for MFJ) and will include an additional credit amount of $500 for each child qualified as the taxpayer’s dependent.

Eligibility for payments will ultimately be based upon 2020 income figures. However, since these figures are not yet available, eligibility will be estimated based on returns filed for the 2019 tax year, or the 2018 tax year if a 2019 return has yet to be filed. The threshold figures listed below will be used to calculate eligibility for advances of the credit and these same figures will then be assessed with the filing of 2020 returns to determine if there was an underpayment or overpayment of the credit.

The 2020 refundable tax credit is subject to limitations and phase outs based upon an individual’s adjusted gross income (AGI). Single taxpayers will see phase outs beginning at the $75,000 AGI threshold, credits are fully phased out once a single taxpayer’s AGI exceeds $99,000. Taxpayers with Head of Household (HoH) status will see phase outs beginning at the $112,500 AGI threshold, credits are fully phased out for HoH filers once AGI exceeds $136,500. Married Filing Joint (MFJ) taxpayers will see phase outs beginning at the $150,000 AGI threshold, credits are fully phased out once a married couple’s AGI exceeds $198,000. The additional child credits of $500 are not subject to phase-out through these ranges; however, once a taxpayer is fully phased out of their individual credit, the child credit also phases out.

If the taxpayer receives a credit which they were eligible for based on 2018/2019 figures, but are ineligible based on 2020 income, the taxpayer may have to repay this amount with their 2020 return. No interest would accrue on any overpayments of this credit. Potential repayment of this credit has yet to be explicitly covered by this recent legislation.

Nonresident alien individuals, estates or trusts, and individuals who are qualified as dependents on another taxpayer’s return, are NOT eligible to receive the advance credit.

Please contact our office with any questions you have regarding your tax situation and the potential recovery rebate.