CARES Act - Part I - Stimulus Payment

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) consists of about 880 pages touching every industry. Over the next couple of days, we will address a separate section each day to break it down for you. A note of caution here – while the Act has passed and we have the basics of what is provided, until we receive guidance from the Internal Revenue Service there are still many unknowns on how this is going to administered. There are a number of “experts” out there on social media expressing their opinions. Rely on the experts in our industry, wait for final instructions from the IRS, and before sharing information be sure it is coming from a reliable source.

 

Part I: Stimulus Payments

 

Of course, the most urgent topic on everyone’s mind is how much of the stimulus payment they will receive and when will they get it? The Washington Post has put out a “stimulus calculator” to help people determine the amount of the stimulus payment based on their income and family size.

 

So, what we know today about the stimulus payment:

  • When will the stimulus payments come out? It is anybody’s guess. The Secretary of the Treasury, Mnuchin, said by April 6th; the IRS is saying three to four weeks; past experience with rebate checks has shown that a month is more realistic.

  • If the taxpayer received a refund on their 2019 (or 2018) tax return and the funds were direct deposited into their bank account or debit card, then the stimulus payment will be deposited into the same account, otherwise a check will go to the address on file. (Here I would have normally told you to file the Form 8822 immediately to report a change of address, however, since the IRS is delayed in processing mail it is not known how long it will take to have the information entered into the system)

  • What happens if you moved, changed banks, had a baby, got married/divorced, etc. etc. etc. – we don’t know. The IRS will be putting out instructions on this.

  • The stimulus payment is actually an advance based on Adjusted Gross Income (AGI) for 2020. But since we do not know that amount is until 2021, they are basing it on the AGI reported on the 2019 tax return and if that has not been filed then the payment is based on the AGI reported on the 2018 tax return.

  • There are income limitations for the stimulus payment – for single taxpayers with an AGI under $75,000 they will receive the full stimulus payment of $1,200; between $75,000 and $99,000 there is a sliding scale; and no stimulus payment if the AGI exceeds $99,000. For a married couple the numbers are doubled: under $150,000 AGI they will receive $2,400; between $150,000 and $198,000 AGI there will be a sliding scale; and no stimulus payment if AGI exceeds $198,000. Head of Household limitation starts at $112,500 and fully phases out at $136,500.

  • For dependent children under the age of 17, the stimulus payment is $500 (which also phases out depending on AGI). What happens if you have other dependents on your return? The first read is that there will be no stimulus payment for dependents other than qualifying dependent children.

  • If the taxpayer is a non-filer then the process is to look at the social security records to see if income has been reported for the taxpayer

  • For recipients of Social Security and veteran’s benefits they will also receive the stimulus payment even if they have not had a filing requirement – and no tax return is required to be filed in order to collect the benefit. The funds will be deposited into the same account their monthly benefit check is deposited.

  • The stimulus payment is not taxable, however, there is to be a reconciliation process on the 2020 income tax return to determine if you should have received more if the stimulus payment was limited due to your 2019 (or 2018) income and your 2020 income dropped or if you owe back any excess of the stimulus payment if your income in 2020 went up. There are two versions of this out there and we will wait until we get guidance from the IRS.

  • How do I know when my check is sent? According to the bill, you will get a paper notice in the mail no later than a few weeks after your payment has been disbursed. That notice will contain information about where the payment ended up and in what form it was made. If you cannot locate the payment at that point, it would be time to contact the IRS using the information on the notice.

  • The bill also calls for everyone who is eligible for the stimulus payment to have a social security number with an exception for the military. Until we get final confirmation from IRS counsel regarding ITINs, this is the interpretation of the law.

  • What if the taxpayer owes the IRS money? The stimulus payment will be sent to the taxpayer, it will not be applied towards any outstanding tax liability.

 

The Better Business Bureau is already reporting that government imposters are calling about COVID-19 relief. As part of the scam, callers suggest that you might qualify for a special COVID-19 government grant and that it's necessary to first verify your identity and process your request. Variations on the scheme involve contacts through text messages, social media posts, and messages. 

 

Other twists on the scam suggest that you can get more money from the government - or get your stimulus check faster - if you share personal details and pay a small "processing fee." Do not take the bait. Stimulus checks are free money from the government. You do not need to spend money to receive your check. And there are no short-cuts - even for a fee.

 

The Internal Revenue Service (IRS) will deposit your check into the direct deposit account you previously provided on your tax return (or, in the alternative, send you a paper check). The IRS will not call and ask you to verify your payment details. Do not give out your bank account, debit account, or PayPal account information - even if someone claims it is necessary to get your stimulus check. It is a scam.

 

If you receive a call, do not engage with scammers or thieves, just hang up. If you receive texts or emails claiming that you can get your money faster by sending personal information or clicking on links, delete them.

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