Tax Service Plus
The Stimulus bill passed by Congress and signed by the President on March 27, 2020 contains many provisions affecting every American. The official name of the law is the Coronavirus Aid, Relief, and Economic Security Act’’ or the “CARES Act”. Set forth below are some common question that you may have or may be asked by your clients.
Question: How can I access the details of the bill?
The bill can be accessed by copying and pasting the link below.
Question: What is the maximum amount that a taxpayer can receive in recovery rebates?
The maximum recovery rebate amounts are $1,200 each for a taxpayer and for the spouse, for a total of
$2,400 for a married couple. The recovery rebates also include an additional $500 for each child that is eligible for the Child Tax Credit.
For purposes of the advance recovery rebate payments, the child must be age 16 or under, have a valid
social security number and was claimed on the taxpayer’s most recently filed tax return (2019 or 2018). The child will need to be claimed on the recipient’s the tax return in 2020 as
a Qualifying Child as defined is this law.
Question: When the taxpayer reconciles the advance recovery rebates on their 2020 tax return will the advanced payment amount be reduced?
If the 2020 Net Tax Liability is less than the advance recovery rebate received by the taxpayer, the rebate will be reduced to the Net Tax Liability. However, the recovery rebates will not be reduced to less than $600 ($1,200 on a joint return) plus $500 for each Qualifying Child on the tax return.
Question: What are the income thresholds for a taxpayer(s) to receive a recovery rebate?
The AGI income thresholds are $150,000 for MFJ, $112,500 for HOH and $75,000 for all other filing statuses.
The advance refundable credit will be reduced by 5% by the amount the taxpayer is over the thresholds. In the case of joint returns, $1,200 is the credit for each party.
The recovery rebate payments are based on the 2019 tax return, but there is a provision to send out the payments based on the 2018 tax returns if the taxpayer(s) has not yet filed their 2019 return. In the event, an individual(s) is not eligible for a payment or the payment is reduced because of the 2019 Adjusted Gross Income, they will be able to recalculate the payment based on their 2020 AGI and receive the credit.
In the event, the payment that is based on the 2019 AGI (or 2018) is greater than what the
taxpayer would receive if the payment was based on the taxpayer’s 2020 AGI, the taxpayer will not have to repay the excess payment amount.
Question: Will individuals that currently have a delinquent tax obligation or other refund offset item have their advance recovery rebates held or used to offset their obligations?
The payments being sent are not to be used to offset any current obligation by the IRS. As a result, all individuals otherwise entitled to receive the payments will get them.