Continuing to unpack the CARES Act, we will be reviewing one of the most-talked-about parts of the relief package—the provision to send direct payments to taxpayers either by direct deposit or by paper check.
Here are four things to know about how this part of the bill is working:
- Eligibility: Congress has authorized one-time payments of up to $1,200 per individual taxpayer, along with an additional $500 for each child under 17 they claim as a dependent. “Up to” is, however, a key phrase. Taxpayers whose adjusted gross income (AGI) was less than a certain threshold will be entitled to the full benefit ($75,000 for single filers, $112,500 for those filing as heads of households or $150,000 for married couples filing jointly). Payment amounts are gradually reduced at higher levels of income until they phase out altogether for higher earners.
Here’s how to estimate how much you are eligible for: Start with the full payment—$1,200 as an individual or $2,400 for a married couple filing jointly. Then, for every $100 in income above the threshold, your payment is reduced by $5. If you earn more than $99,000 as a single filer (or $198,000 as a couple), you won’t be receiving a check.
- Not Taxable: The money is considered an “advance refundable tax credit.” In English, it’s a refund on taxes to be paid in 2020—similar to measures passed by Congress in response to the 2001 and 2008 recessions. Since you haven’t paid your 2020 taxes yet, the IRS will be using your 2019 return to determine whether you’re eligible and for how much. If you haven’t filed for 2019 yet, the IRS will rely on your 2018 return instead.
- Keep the Extended Filing Deadline in Mind: The extended filing deadline of July 15 and the new advance credit may impact your tax strategy. If you’d be eligible for a payment based on your 2018 income but ineligible based on your 2019 income, you may wish to delay filing your 2019 return until after the payments are made—the CARES Act does not contain a provision to recoup any over-payment. If your 2019 income was below the threshold while your 2018 was above, consider filing as quickly as possible to receive the funds.
- Visit IRS.gov: Some taxpayers have already begun to receive their direct payments. If you have not, or if you are unsure whether you’re eligible to receive a payment, visit the IRS’ “Get My Payment” page. After entering some personal information, the website will tell you whether you are eligible and the status of your payment. You’ll also be able to confirm if the IRS has your bank account information on file. (We recommend providing the IRS with your bank account information if you can do so, as paper checks will be slower than direct deposits.) Once you enter your information, the IRS says you should receive a direct deposit within several days if you’re deemed eligible. Not all payments have been processed yet—if the system doesn’t have your information, continue to check back once per day.
As always, if you have any questions about your specific situation and whether you are eligible to receive a payment, please contact your wealth management team. We will be happy to assist.
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