UNITED STATES – MARCH 24: From left, Treasury Secretary Steven Mnuchin, White House Legislative … [+]
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The Senate passed the “Coronavirus Aid, Relief, and Economic Security Act,” or CARES Act, on Wednesday and the House followed on Friday. All that remains is a signature from the President and the bill will become law.
With both chambers passing the bill, this is the first time we have a passed bill outlining the parameters of a stimulus payment to American families.
Taxpayers who earn under the income phaseout will get $1,200 each while joint filers will get $2,400. Those with qualifying children will get an additional $500 per child with no limit on the number of children.
A family of four that is under the income threshold would get $3,400.
But there is an income phaseout based on your adjusted gross income.
What is the income phaseout? The stimulus check is reduced by 5% of your adjusted gross income above the start of the income phaseout:
- For single filers, the income phaseout starts at $75,000.
- For joint filers, the income phaseout starts at $150,000.
- For heads of household, the income phaseout starts at $112,500.
Joint filers that make $170,000 in adjusted gross income would see their stimulus amount reduced by $1,000. If they had no children, they would receive $1,400. If they had one child, they would receive $1,900.
For a single filer with no qualifying children, the stimulus check is phased out when they have an adjusted gross income above $99,000.
Joint filers with no children and have an adjusted gross income above $198,000 and heads of households with an adjusted gross income above $136,500 will get not get a payment.
The stimulus is an advance of a refundable tax credit on your 2020 taxes.
In other words, the bill created a refundable tax credit and the IRS is paying out the amount of that tax credit to eligible taxpayer now. Since the IRS does not have your 2020 tax year information, it will use a previous year’s information to calculate the amount.
This is a tax credit so it is not considered taxable income for 2020.
If the IRS gives you too much of a stimulus check, you could be asked to pay back the difference but not until you file your return on April 15, 2021. You will not be assessed interest on the over-payment amount. If the IRS pays you too little, you’ll get the difference added to your tax refund next year.
The IRS will use your 2019 tax return to determine the amount of your check. If you have not filed a 2019 tax return, the IRS will use your 2018 tax return to determine your amount.
If you have not filed for either year, they can also use Form SSA-1099 Social Security Benefit Statement or RRB-1099 Social Security Equivalent Benefit Statement.
If you didn’t file your taxes for either year and don’t get either statement, the IRS recommends you file as soon as you can if you would qualify using a 2019 tax return.
How to Maximize Your 2020 Coronavirus Stimulus Check
To maximize your stimulus refund check, you need to know your adjusted gross income for 2018 and 2019.
If your adjusted gross income was below the income threshold for both years and you did not have more qualifying children, there’s no stimulus check reason to file your 2019 tax return as soon as possible. You may wish to file quickly so you get a tax rebate sooner and ensure your payment information is correct if it changed from last year, but it will make no difference with the size of the check.
If your adjusted gross income was higher in 2019 than in 2018, you should wait to file your return. Then the IRS will use your 2018 return, which has a lower income, and your amount will be larger. Your adjusted gross income can be found on line 7 of the 2018 Form 1040.
If your adjusted gross income was lower in 2019, you should file as quickly as you can. The IRS will use your 2019 tax return to calculate your amount because you have a 2019 return. Your adjusted gross income can be found on line 8b of the 2019 Form 1040.
Another important factor to consider is if you added any any qualifying children between 2018 and 2019. If you did, your total amount is increased by $500 for each qualifying child to factor that into your calculations.
If you need to file your return, the IRS Free File program is fantastic for finding a free way to file your taxes.
Beware of Coronavirus Stimulus Check Scams
As you would expect with any novel cash payout, there will be scams.
The IRS will not call you about your check. If you get a phone call about it, you can safely assume it’s a scam or fraud. The IRS will not call you to update your bank or address information.
The bill explicitly states that no later than 15 days after the payment is made, the IRS will mail you a letter about the stimulus. It will contain information on the method and amount of the payment. It will also include how to update the IRS if the payment was not successfully completed.
If you have changed banks, and you no longer have an account with the bank on your tax return, you will have an opportunity to update them but only after the letter is sent.
If you changed your address, you will have to review the IRS Coronavirus information for more information on how to proceed. It will be updated with what you need to do since you won’t get the mailer.
Treasury Secretary Steven Mnuchin has previously said that the checks authorized by the stimulus package should arrive within three weeks, which would put it near the end of April.