The Coronavirus Aid, Relief and Economic Security (CARES) Act: Tax Relief for Individuals
The Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (CARES Act, The Act) was signed by the President on March 27, 2020, and is now law. The following is a brief summary of recovery rebates for individual taxpayers.
What are the Recovery Rebates for Individual taxpayers?
To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joint returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit). These rebates will not be considered taxable income for 2020.
Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income (AGI) over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Under these rules, the rebate/credit is phased out for a single filer with AGI exceeding $99,000 and for joint filing taxpayers with no children AGI in excess of $198.000.
Tax filers must have provided, on the relevant tax returns or other documents, Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.
How will the tax rebate be paid?
The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.
The ultimate decision concerning whether a taxpayer is entitled to a rebate/credit will be based on a taxpayer’s AGI on their 2020 tax returns. Taxpayer’s will file a schedule computing the amount of the credit/rebate with their 2020 tax return. If AGI has declined substantially from 2018 or 2019, a taxpayer could be entitled to a credit on their 2020 tax return. Conversely, if AGI has substantially increased compared to 2018 or 2019, taxpayers will not be required to repay any rebate funds previously received.
Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.
We are closely monitoring this evolving and unique economic situation. We will keep you updated and informed on how to respond to these and additional tax and regulation changes as they are announced.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.