29 April 2021 - Events
This article was published by Barron’s on March 27, 2020.
The $2.2 trillion economic stimulus package passed unanimously by the Senate late Wednesday includes a one-time payout of $1,200 to individuals and $2,400 to couples, plus another $500 per child under age 17.
Called a “rebate” in the package, it is really an advance of a tax credit for the 2020 tax year, according to an aide from the Senate Finance Committee. The goal is to provide some immediate help to people who have come under the crushing financial blow of the Covid-19 virus and also fall under income thresholds.
Among about a half a dozen provisions geared toward individuals, families, and small businesses, the rebate is designed to take the edge off of higher healthcare bills, unemployment, or reduced working hours for many Americans.
The Senate bill, the largest economic stimulus package in U.S. history, is expected to be brought to the House floor for a voice vote—meaning representatives need not be present—on Friday.
Eligibility for the rebate is determined by adjusted gross income claimed on 2019 tax returns—or, for folks who haven’t filed a return yet, on 2018 tax returns.
Singles who earned up to $75,000 qualify for the full rebate. The benefit gradually decreases to zero on incomes between that threshold and $99,000. Couples with income of up to $150,000 get the full benefit; a partial rebate will be given when income ranged from $150,000 to $199,000.
“The amount of the credit is reduced by 5% for each $1 of AGI over $150,000 for couples and $75,000 for singles,” says Lisa Featherngill, head of legacy and wealth planning at Abbot Downing.
People who are ineligible for the tax credit based on prior-year returns, but have lost their jobs and would qualify based on their 2020 income can claim the credit when they file their 2020 return (in 2021). Similarly, people who are eligible for just a partial credit base on prior-year returns but could claim the full credit based on 2020 income will be “trued up” when they file for 2020, the aide said. No one who gets the credit but then earns too much money in 2020 will have to pay it back, though, he added.
About 90% of all Americans will be receiving the payment, according to an estimate by the Tax Policy Center. Payments could be directly deposited into the accounts associated with prior tax returns, but the details have yet to be worked out.
“For the vast majority of Americans, you won’t have to do anything to qualify—they’re just going to put a check in the mail as long as they know you’re out there and you qualify,” says Ed Renn, a senior equity partner at Withersworldwide, an international law firm. “If you didn’t file a 2019 or 2018 tax return, you may have to raise your hand to get the rebate.”
The protocol in this situation isn’t yet clear. Currently, the Internal Revenue Service website has a tab for coronavirus relief on its home page, but no instructions yet. Taxpayers are asked to check back online for updates—but not to call.
Senate leaders are pushing to get checks in the mail in the first week of April, but there may be delays. “They’ve dumped this on the IRS, and the IRS is not overfunded or overstaffed,” quips Renn.
Previous stimulus checks have taken significantly longer—up to three months in 2008. To expedite the process, the current stimulus package allows an income look-back to 2018, rather than requiring income tax returns to be filed for 2019 before releasing the funds.
Click here to read more insights on how we can weather the coronavirus outbreak with you.