CAA: Additional 2020 Recovery Rebates for Individuals

Additional 2020 Recovery Rebates for Individuals

by Ron Kuyath

After months of debate in Congress, the COVID-Related Tax Relief Act of 2020 located within the Consolidated Appropriations Act, 2021 will soon be signed into law on December 22, 2020 after anticipated presidential signature. This act provides a second round of stimulus payments to help Americans hard hit by the pandemic. The maximum amount available per eligible individual is $600 ($1,200 in the case of eligible individuals filing a joint return) plus $600 for each qualifying child (defined as not reaching the age of 17). An eligible individual means any individual other than:

1. a nonresident alien
2. an individual that could be claimed as a dependent of another taxpayer, and
3. an estate or trust.

However, not everyone will receive a stimulus check. Just like the first round of stimulus money, the advances have income limitations based on your filing status. Expect a reduction of $5 for every $100 in 2019 Adjusted Gross Income (AGI) over the following amounts:

1. $150,000 in the case of a joint return or a surviving spouse,
2. $112,500 in the case of a head of household, and
3. $75,000 in the case of single or married filing separate taxpayers.

The phase-out rate was much slower in the first round of stimulus under the CARES Act so do not be surprised if you do not receive a check in the latest round.

1. Joint Return and Surviving Spouse – AGI of $174,000 will reduce $1,200 to $0 (compared to $198,000 under the CARES Act),
2. Head of Household – AGI of $124,500 will reduce $600 to $0 (compared to $136,500 under the CARES Act), and
3. Single and Married Filing Separate – AGI of $87,000 will reduce $600 to $0 (compared to $99,000 under the CARES Act).

Just as in the CARES Act, these stimulus payments are an advanced credit on your 2020 taxes. In order to get the payments out quickly, the IRS has relied on the information contained within the taxpayer’s 2019 tax returns. If your stimulus payments were reduced because of the AGI limitations of 2019 but 2020 earnings were less, you will get the credit on your 2020 tax return. Don’t worry if you are fortunate enough to have higher income in 2020, you will not have to pay back the stimulus money if you would have been otherwise limited.

Treasury Secretary Mnuchin indicated that checks will begin showing up in bank accounts as early as the week of December 28th. Just as the last round, the Treasury Department is planning to make the payments electronically again to the extent possible and will issue checks if electronic information is not available. In addition, the Internal Revenue Service will utilize information in their system for Social Security, Supplemental Security Income and Railroad Retirement recipients that are not required to file income tax returns to process the appropriate rebates.

If you have any questions about how these provisions may impact your individual tax situation, please do not hesitate to reach out to your trusted BRC advisor.