We’ve had quite a bit of federal legislation pass recently. Some of it is tax related. I will be talking in more detail about the tax components in a later article. Right now, though, many folks understandably want to know about the relief payments to individual taxpayers. Here’s what I know today. If new guidance is released, I will know more, so be sure to check with me on questions regarding your particular situation if you have any concerns. Also check in if your particular situation is not covered here.

Here’s the scoop:

  • As part of the federal economic relief act signed into law on Friday, March 27, 2020, the CARES Act, payments of various amounts will be issued to certain folks in the near future.
  • Relief payment amounts will ultimately be based on activity reflected on 2020 individual income tax returns that will be filed in 2021. In other words, a true-up of sorts will occur on personal tax returns filed next year.
  • For now, payments will be issued based on 2019 tax return data, if that return has been filed, or 2018 tax return data if a 2019 tax return has not yet been filed.
  • Payments are up to $2,400 for married couples filing joint returns. Payments are up to $1,200 for single taxpayers.
  • A $500 additional payment applies for each child under 17 years old claimed as a dependent.
  • If your adjusted gross income is over $75,000 (single) / $150,000 (joint) / $112,500 (head of household), your advanced relief payment is reduced. The payment is reduced by $5 for every $100 over the threshold. At $99,000 (single) / $198,000 (joint) / $136,500 (head of household), your relief payment based on your income is $0.

Good to know:

  • If you do not file a tax return, but do receive Social Security, you’ll be sent a relief payment based on activity reported on your Form 1099-SSA. Payments are to be deposited into the same account where your SSA payments are currently deposited.
  • If bank information was included with your 2018 or 2019 tax returns, this information will be used to attempt a direct deposit. In lieu of direct deposit, a check will be mailed to your last known address. I expect this to go well for many folks and to not work at all for many others. The CARES Act indicates the IRS will issue a phone number to help folks track down their advanced relief payments, but also note that the IRS has closed most of its external-facing operations as of this past week.*
  • If you are a dependent on someone else’s tax return, you are not entitled to a relief payment.

Q1: If I haven’t yet submitted my 2019 tax return, how will this impact my relief payment? Your payment will be based on your adjusted gross income from your 2018 tax return.

Q2: If I haven’t yet submitted my 2019 or 2018 tax returns, how will this impact my relief payment? Unless you receive Social Security payments, you will not be scheduled to receive an advanced relief payment. Instead, you will calculate the amount of relief payment, if any, on your 2020 tax returns filed in 2021.

Q3: My 2019 income is under the income threshold, but my 2018 income was over the threshold. If I haven’t yet submitted my 2019 tax return should I be in a rush to do so now? As of Saturday, March 28th, there’s been no guidance from the IRS as to the date as of which relief payment recipients will be identified. This means that you could file your 2019 tax returns today and it could still be too late to receive an advanced relief payment. Or you could have another week or two. We just don’t know right now.

For my clients who have all of their 2019 tax information available and want to file sooner rather than later, I continue to diligently work to get tax returns prepared and submitted. This should be balanced against other concerns, though – health, financial distress, etc. In other words, you may have bigger fish to fry than scrambling to file a tax return right now and that is OKAY.

Q4: Will an advanced relief payment I receive now reduce my 2020 federal tax overpayment when I file my 2020 tax returns in 2021? In other words, will I get dinged next year? No. Relief payment amounts are considered non-taxable credits and there is no claw-back provision for amounts that were “over-advanced.”

Q5: 2018 and 2019 tax returns have been filed and both were pretty good years, well over the advanced relief payment thresholds. Today, though, I could really use the money. Do I really have to wait until next year’s tax filing to receive the relief payment? Unfortunately, yes.

Q6: Since 2018, I’ve been married, divorced, had kids, etc. This advanced relief payment doesn’t seem to take any of that into account. It does not.

*Sidebar: The IRS can only do what it’s funded to do. They are certainly not my favorite group of folks, but the fact that they live in the technological dark ages is because they are underfunded. Congress tells the IRS what to do but doesn’t always give them the money to do it.