You may have heard that part of the new legislation regarding the coronavirus relief package includes a tax provision allowing eligible individuals to receive a stimulus payment. We have received many questions regarding this payment and wanted to provide a resource for those who may be asking similar questions.
How much will it be?
This payment is considered to be an advance 2020 income tax credit equal to $1,200 for single filers or $2,400 for eligible individuals filing a joint return plus $500 per qualifying child.
Who is eligible?
An eligible individual is any individual other than non-U.S. Citizens residing in the United States or anyone who can be claimed as a dependent. A qualifying child is a child who has not yet reached age 17. It is unclear in which year becoming 17 years of age disqualifies dependents as a qualifying child.
The credit is reduced (not below zero) by 5% of adjusted gross income (AGI) in excess of $150,000 for a joint return, $112,500 for head of household, and $75,000 for all other taxpayers.
For example, joint filers with one qualifying child and an AGI of $170,000 will receive a payment of $1,900. They get $2,400 as eligible individuals filing jointly and an additional $500 for their qualifying child. However, their AGI exceeds the threshold by $20,000 so the payment gets reduced by 5% of that amount, or $1,000.
Are college students eligible?
Unfortunately, there is a gap in the law that excludes most full-time college students from receiving a payment. In most scenarios they are not considered an eligible individual because they can be claimed as a dependent (whether or not they were actually claimed) on their parent’s tax return. They are also not considered a qualifying child for the reduced ($500) credit because they are older than 17.
How do they determine your AGI in calculating the credit?
Your most recently filed income tax return is used to calculate the credit. For most filers that will be their 2019 income tax returns and for those who have not yet filed, the IRS will use your 2018 income tax return.
What if I did not file a tax return?
In this case, the IRS will use information from 2019 Social Security statements to determine eligibility. This is largely for individuals without a filing requirement because their primary source of income is social security that is entirely or partially income tax free.
Do we have to pay it back?
No. The credit will be reconciled on your 2020 tax returns. If you were entitled to more than you received, then you will claim the balance of the credit on your 2020 tax return. If you were paid more than you were entitled to, you will not be required to pay back the excess.
How will I receive the payment?
The IRS can make the payment electronically to an account authorized on or after January 1, 2018 or send a check. The Treasury plans to create a website for individuals to update their bank account information if needed.
They will mail a notice to the taxpayer’s last known address within 15 days of issuing the payment indicating how the payment was made, the amount, and a phone number to contact if the payment was not received.
When will I receive my payment?
The treasury department and the IRS announced March 30, 2020 that they expect the payments to be distributed within the following three weeks.
The situation around coronavirus is rapidly changing and new information is continually released to provide additional guidance for the uncertainty surrounding COVID-19. We will update our resources accordingly as new information becomes available.