14 Apr Individual Stimulus Payments
The IRS will start sending Economic Impact Payments to most Americans in April. Check your eligibility, payment status and confirm your payment type.
A Few Words of Caution: Scammers will doubtlessly come up with an IRS look-alike website in an attempt to steal taxpayers’ direct deposit info, which can also be used for direct withdrawals. When visiting the IRS’s website, always make sure you are on IRS.gov before entering any personal or financial information. And don’t fall for solicitations from scammers who want to charge you a fee to help you apply for the rebate payment; the IRS does not require any fees, and in most cases, an individual’s Economic Impact Payment will come automatically from the IRS.
What Does the Stimulus Package Mean for You?
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes many tax and financial breaks for individuals. For many households, the most important provision will be the individual cash payments, called Recovery Rebates. Below we break down many of the essential elements and how the stimulus package can assist individuals during this troubling time.
Recovery Rebate (individual cash payments) – The most talked about provision is the “recovery rebates” for individuals. These rebates are actually credits allowed on taxpayers’ 2020 tax returns that will be paid out in advance by the Treasury.
Each eligible individual will receive $1,200 ($2,400 for married couples filing jointly) plus an additional $500 for each qualifying child. These rebates are phased out for higher income individuals. Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.
The Treasury will determine who will receive a payment and the amount they are entitled to based on the individual’s 2019 tax return. Where no 2019 return has been filed at the time of the rebate payment, the Treasury will use the 2018 tax return. For those who did not file a 2018 or 2019 tax return click here for more information. The stimulus payments will be direct deposited to your bank account as shown on the last tax return filed. Note: If you’ve moved, and you haven’t provided the IRS with direct-deposit information, you should make sure the agency has the correct address on file to receive a paper check in the mail. Check payment status, eligibility and more on the IRS website.
Where an advance rebate is more or less than allowed because an individual’s filing status or family size is different in 2020 or the credit is subject to phase-out based on 2020 income, the adjustment is made on the 2020 tax return. Thus, individuals may be entitled to an additional credit. Advance rebates that are more than is allowable for 2020 must be reduced (but not below zero) by the advance rebates made or allowed to the taxpayer during 2020. This means that individuals who otherwise wouldn’t have a 2020 return filing requirement based on their income will likely have to file to reconcile their advance rebate with their actual credit.
The rebates will not be paid to individuals who were claimed as a dependent.
We encourage our individual clients that have not yet submitted their 2019 tax information to do so quickly to maximize your rebate and avoid delay.
Additional Key Provisions for Individuals:
The CARES Act is over 500 pages covering tax provisions, economic stimulus, business loans, health care and more. Below is an overview of additional key issues relating to individuals.
- Penalty Free Retirement Withdrawals – Penalty-free withdrawals from qualified retirement plans (including 401(k)s, TSAs, SEPs and traditional IRAs) are allowed. The withdrawals are limited to $100,000 and the income is taxable over a three-year period with an option to also recontribute the withdrawal over a three-year period.
- RMD Waiver – There is a one-year waiver for the 2020 required minimum distribution (RMD) from qualified plans and traditional IRAs for taxpayers that turned 70.5 in a year before 2020 and those that turn 72 in 2020. This prevents them from having to take a distribution when the stock market is in a decline.
- Charitable Contributions – A suspension of charitable contribution limits applies for 2020. Generally, for cash gifts, tax deductible charitable contributions are limited to 60% of adjusted gross income (AGI). The suspension of the limitation will allow taxpayers to make larger charitable contributions during this trying time. Also included is an above-the-line charitable deduction limited to $300 of cash donations for those that don’t itemize their deductions.
- Student Loan Payments – Employees can exclude from income payments (Up to $5,250) made before January 1, 2021 by their employers towards their student loans.
- Business Owners – For more information on business stimulus visit HaynieCPAs.com/News