The Coronavirus has infected our life in many ways. Family and friends are sick, quarantined, or under a stay-in-place order. The stock market has dropped a ton and is gyrating like crazy. The kids are out of school. Restaurants and shopping malls are closed. More than three million unemployment claims were filed in one week. Enough of the cable news . . . If you are laid off or you have closed your business, you know the details.
At the end of last week, a new law was signed called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus package to mitigate the impact of the Coronavirus pandemic.
The CARES Act includes stimulus payments of $1,200 for each individual and $500 for each dependent child, defined by the child tax credit rules as under age 17.
What follows is a bit technical, but we wanted to let you know what you might expect.
Individuals with adjusted gross income (AGI) up to $75,000 a year are eligible for the full $1,200 payment. The payment is reduced by $5 for every $100 in income above $75,000. The payment amount is entirely phased out at an AGI of $99,000.
Married filing joint (MFJ) couples with AGIs up to $150,000 a year are eligible for a $2,400 payment. The payment is reduced by $5 for every $100 in income above $150,000. The payment amount is entirely phased out at an AGI of $198,000 (if the taxpayers have no dependent children). Married couples also will receive an additional $500 for every dependent child under 17.
Example – MFJ with no children. Keith and Norma are married filing joint. They have no dependent children. If they have AGI of $150,000 or less, they are eligible for a $2,400 payment. If they have AGI above $150,000, their rebate will be reduced and finally phased out at an AGI of $198,000.
Example – MFJ with two children. Chris and Pat are married filing joint. They have two dependent children under age 17. If they have AGI of $150,000 or less, they are eligible for a $3,400 payment. If they have AGI above $150,000, their rebate will be reduced and finally phased out at an AGI of $198,000.
Head of household filers with AGIs up to $112,500 a year are eligible for the full $1,200 payment and an additional payment of $500 for each dependent child under age 17. The payment is reduced by $5 for every $100 of income above $112,500. Head of household taxpayers will also receive an additional $500 per dependent child under age 17. With no eligible children, a head of household filer is phased out at AGI of $137,000. With one eligible dependent child, a head of household filer is entirely phased out of the rebate payment at AGI of $146,400.
Example. Head of Household- no children under 17. Heather has an 18-year-old high school senior living with her and qualifies as a head of household filer. If her AGI is $100,000, Heather’s payment is $1,200. Her dependent child does not qualify her for the additional $500 payment because the child is not under age 17. If Heather’s dependent child is under age 17, her payment is $1,700.
Phaseout of the rebate. If your income is above the threshold amounts, a reduced payment will result. The reduced amount using your own income (AGI) can easily be calculated using the Washington Post calculator.
Nothing. The IRS will deposit the calculated amount directly into your bank account, using the AGI and the bank information on your 2019 tax return. If your 2019 return hasn’t been filed, the IRS will use the AGI and the bank information from your 2018 tax return. If there’s no bank information on the return, the IRS will mail a check.
The IRS says that a direct deposit should be in your bank account in about three weeks. Checks should start arriving in six to eight weeks.
Technically, the stimulus rebate is a 2020 refundable tax credit, but let’s worry about the intricacies of this at another time.
Please contact us if you have questions and stay safe.
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