How Will The Coronavirus Bill’s Individual Tax Payments Work?

For many households, the most important provision of the massive $2.2 trillion stimulus bill passed by the Senate last night will be the individual cash payments, called recovery rebates. Most adults will get $1,200 and most children $500, but the money won’t go to everyone. And some people may find the process of getting the money complex.

Here is how it will work:

The basic payment will be $1,200 for each adult ($2400 for a couple filing jointly) and $500 per child. It will be delivered by the Treasury Dept. either through direct deposit to your bank or a check mailed to your home. While Treasury Secretary Steven Mnuchin has promised people would get the payments within two weeks, a more realistic estimate is that it will take a month or more before you’ll see the money.

Overall, the Tax Policy Center estimates that about nine in 10 households would get at least some payment. However, not everyone would get the full amount and some people may not get anything at all.

Using your 2019 return

Most payments are based on the Adjusted Gross Income (AGI) you reported on your 2019 tax return (the one you may have just filed). Payments begin to phase out for singles with AGI of $75,000, couples filing jointly with AGI of $150,000, and single parents (heads of household) with AGI of $112,500. The payment phases out at a 5 percent rate. Thus, for example, a married couple with no children and $198,000 or more of AGI would get no payment.

Others ineligible for any payment include 17- or 18-year old children, college students age 19-23, estates, adults who can be claimed as a dependent (say a disabled sibling or a frail parent), and non-resident aliens—a  tax term that describes non-US citizens who have no green card or who fail to reside in the US for a long enough period of time. You also must have a Social Security number (SSN). If one spouse has an SSN, but the other does not, the couple is ineligible for the payment (there is an exception for military families).

The payment technically is a tax credit advanced to your 2020 taxes that you’ll report on the return you file in 2021. The money will go to most households based on their 2019 tax return. For those who have not yet filed a 2019 return, their payment would be based on their 2018 return.  If you are a retiree who didn’t file a return for either year, the IRS would use your Social Security benefit statement to determine eligibility.

Who Isn’t Eligible

Others who did not file either a 2018 or 2019 return would be ineligible for the payment, although they could file a 1040 now and still get a check.  Non-filers might include people who were students, people on public assistance or Supplemental Security Income, or even working people whose income fell below the standard deduction amount. One older study found that about 9 million people have their taxes withheld but do not file a return.

A few other things to know: The credit won’t be reduced if you owe back federal or state taxes. And, if it turns out your credit was too big when you file your 2020 tax return in 2021, you won’t have to repay the Treasury.  

The eligibility rules are complex, and that may slow the delivery of payments somewhat. But the measure does a pretty good job of targeting government payments to those who need it most to pay rent, utilities, health care costs, and other daily expenses.  

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