Stimulus payments and tax relief under the Coronavirus Aid, Relief and Economic Security Act (CARES Act)
By Lynelle Morgan
Family Law Attorney
On Friday, March 27th, 2020 President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES ACT). This act allocates approximately $2.2 trillion toward mitigating the negative economic, health, and safety impacts of the pandemic.
An important part of the CARES Act is the economic stimulus payments for taxpayers. The stimulus payments are being made as an advance on a 2020 tax credit. Because they are a tax credit, the payments are not taxable.
The individual payments (both eligibility for and amount of) are income based. Payments for dependent children are not income based. The IRS will use your 2019 tax returns to determine your payment if you have already filed your 2019 returns. If you have not yet filed them, the IRS will use your 2018 tax returns. If you did not file taxes in 2018 or 2019 you may still qualify for an automatic payment based on your social security benefit or equivalent benefit statement.
If you have not filed taxes for the past two years you may want to file your 2019 tax return quickly to be included in the stimulus payments. However, if you do not, you will get the stimulus as a tax credit when you file your 2020 returns. Remember, the payments now are an advance on a 2020 tax credit.
The same goes for a baby that was born after the taxpayer’s last return was filed. The IRS won’t know about that baby, so the taxpayer won’t get the $500 advance payment for that child. The taxpayer can either quickly file their 2019 return to reflect the new baby or can wait and receive the $500 as a tax credit for 2020.
Individual taxpayers whose adjusted gross income is less than $75,000 will get $1,200. Individual taxpayers whose adjusted gross income is higher than $75,000 will get less, with a $5 reduction for every $100 in income over $75,000. For individuals filing Head of Household, the $1,200 payment will be reduced if adjusted gross income exceeds $112,500.
For married taxpayers whose adjusted gross income is less than $150,000, each spouse will get $1,200. Married taxpayers whose adjusted gross income is more than $150,000 will get less, with a $5 reduction for every $100 in income over $150,000. Young adults who can be claimed as a dependent on someone else’s taxes are not eligible for a payment.
Taxpayers with dependent children will get $500 per child, regardless of income. Only children who have not yet turned 17 qualify.
People who have authorized the IRS to deposit their refund electronically at any point after 2017 will get their stimulus payment that way. Others will be sent either a paper check or a pre-paid debit card, still to be determined. If an account that was previously used for direct deposit no longer exists the IRS will get notified of that when they try to make the deposit, and the IRS will then mail the payment.
Paper checks or debit cards will be mailed to the last known address the IRS has on file. Taxpayers can complete IRS form 8822 to change their address with the IRS. However, the payments may be sent before a taxpayer has time to complete this process. https://www.irs.gov/pub/irs-pdf/f8822.pdf.
The federal tax return filing and payment deadline for 2019 taxes has been extended from April 15, 2020 to July 15, 2020. All penalties and interest are also postponed and will again begin accruing on July 16, 2020. There is no limitation on the amount of payment that can be postponed until July 15, 2020.
Lynelle Morgan is a family law attorney with Morton & Gettys Law Firm in Rock Hill, SC. She can be reached at (803) 366-3426 or firstname.lastname@example.org.
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