2020 Recovery Rebates for Individuals

The most publicized part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act) is the immediate cash payments to individuals.  Taxpayers with adjusted gross income (AGI) up to $75,000 ($150,000 in the case of joint returns and $112,500 for head of household) will receive a check for $1,200 ($2,400 in the case of joint returns).  In the event that a taxpayer’s tax liability is less than the $1,200 ($2,400 in the case of joint returns), the amount received will be equal to their tax liability, but will not be less than $600 ($1,200 in the case of a joint return). Taxpayer’s will receive an additional $500 for each qualifying child.

To the extent that a taxpayer’s AGI exceeds $75,000 ($150,000 in the case of joint returns), the check will be reduced by $5 for every dollar over the dollar limits noted above.  As a result, taxpayer’s whose income exceeds $99,000 ($198,000 in the case of joint returns) will not receive a check.

The IRS will look at the adjusted income on a taxpayer’s 2019 tax return to determine the amount of their  check.  If a return has not yet been filed for 2019, the 2018 return will be used.  Even if a taxpayer did not file a return in 2018, the taxpayer still may be entitled to a check.  A second part of the legislation provides that a taxpayer will receive a check if in 2019 they received social security or railroad retirement benefits reported on Form SSA-1099 or RRB-1099.

What taxpayers are actually receiving is an advance payment of a tax credit for their 2020 tax liability.  If after filing their 2020 tax return, it turns out that a taxpayer was entitled to a greater check, the shortfall will be treated as a credit that reduces their 2020 tax liability.  On the other hand, if the check received is greater than the amount a taxpayer is entitled to receive, based on the 2020 return, the excess does not need to be paid back as the legislation says that the credit allowed on the 2020 return shall be reduced, but not below zero, by prior amounts received.

The government wants to get checks into taxpayer’s hands as quickly as possible.  In the end, however, the amount a taxpayer is entitled to receive is based on the above criteria (adjusted gross income, dependents, and qualifying income) as reported on their 2020 tax return.

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