Key Points:
- Individuals will be receiving checks or direct deposits from the government as part of the recovery rebate under the CARES Act, but there are stipulations.
- If your income was more than $75,000 for a single taxpayer, or $150,000 for married filing joint, your rebate check will start to be reduced $5 for every $100 over the respective thresholds.
- The rebate you receive will be considered an advance payment of a credit, which will be computed on your 2020 tax return
One of the big items from the $2 trillion economic stimulus package that impacts individuals is the 2020 recovery rebate. In other words, you could soon see a check in the mail, or cash hit your bank account. If you have provided direct deposit information on your 2018 or 2019 tax return, the IRS will pay your rebate electronically.
How much can you expect to receive?
Well, it depends on a few different factors. The rebate is $1,200 per eligible individual ($2,400 for individuals married filing a joint return). In addition, you will be eligible to receive an additional $500 per child under the age of 17. If you are still claimed as dependent on someone else’s tax return, you are ineligible for a rebate.
Limitations to the Rebate.
If you were single and made $75,000 or less, you are eligible for the full rebate amount of $1,200. What does $75,000 of income mean, and how does the government know?
- The IRS is first going to look to see if a 2019 tax return has been filed. This will determine adjusted gross income. If a 2019 tax return has not been filed yet, the 2018 tax return will be used.
- For married taxpayers filing a joint return, the threshold is $150,000.
- If your income was more than $75,000 for a single taxpayer, or $150,000 for married filing joint, your rebate check will start to be reduced $5 for every $100 over the respective thresholds. If a single taxpayer had adjusted gross income over $99,000, they will not be eligible for any rebate ($198,000 for married filing joint taxpayers).
- The exception to this will be if you have a child under the age of 17. Based on the phase-out calculation, your income could be more before your rebate is completely phased out.
What information is used to determine the rebate amount?
Since either the 2018 or 2019 tax return will be used to determine the rebate amount, it is a good opportunity to see if you can maximize the rebate. If your 2019 tax return has not been filed, you should review the variables that could impact the amount of the rebate which include adjusted gross income, marital status, or number of children. If you would benefit more based on the 2019 tax return, try to file as soon as possible in hopes that it will be used when checks start to be processed. If the benefit would be greater based on your 2018 tax return, it makes sense to delay filing your 2019 tax return until after you receive your rebate check. This should not be much of an issue since the filing deadline has been pushed out to July 15th.
The rebate you receive will be considered an advance payment of a credit, which will be computed on your 2020 tax return. This will be based on your 2020 adjusted gross income. If the advance payment was less than what you are owed in 2020, the excess will be treated as a credit that reduces your 2020 tax liability. If the advance payment is greater than what you are allowed on your 2020 tax return, there does not appear to be any requirement to repay the excess amount nor need to include in income.
If you have any questions on the rebate amounts or if you qualify, please reach out to me at [email protected] or any member of our team at [email protected].
