Coronavirus (COVID-19) Stimulus Payment: What You Need to Know [FAQ]

Last week, Congress passed the largest recovery package in US history. The President signed into law the Coronavirus Aid, Relief and Economic Security Act (or CARES Act) on March 27, 2020. The CARES Act promises coronavirus stimulus payments of $1,200 to most American adults and $2,400 to most married couples. This includes American adults with little or no income at all. In addition, an extra $500 for each qualifying child. To qualify, children must be claimed as a qualifying dependent and be 16 years old or under.

The IRS expects to start issuing the stimulus checks in late April. The quickest way to receive your payment, if you qualify, is by direct deposit.

Who Qualifies?

People, who file their taxes and have an adjusted gross income up to $75,000, if filing as single; $112,500, if filing as head of household; or $150,000, if filing as married filing jointly, will receive the full payment of $1,200 per adult. If your income is above those limits, it starts phasing out at $5 for each $100 (or 5%) above the $75,000/$112,500/$150,000 thresholds. It completely phases out at $99,000 for single filers, $136,500 for head of household filers, and $198,000 for married couples.

Example. John files as single. He has not filed his 2019 tax return yet. However, on his 2018 tax return, his adjusted gross income was reported as $85,500.

If John’s adjusted gross income was less in 2019 or he got married in 2019 and both his and his spouse’s income is below $150,000, John should file his 2019 tax return immediately. Otherwise, John’s stimulus payment will be reduced by $5 for every $100 John’s 2018 adjusted gross income was over the threshold of $75,000. This means based on his 2018 tax return, John would qualify for a stimulus payment of $675, calculated as follows: ($85,500 - $75,000 = $10,500 above threshold)($10,500/$100 = $105)($105 x $5 amount reduced for each $100 above the threshold = $525)($1,200 - $525 = $675 John’s reduced stimulus payment).

If John qualifies for a higher stimulus payment, when he files his 2019 tax return and does not get it filed before his stimulus check was issued, he will be able to claim the additional credit on his 2020 tax return next year.

Example. John qualifies for $675 stimulus payment based on his 2018 tax return. In 2019, John got married, and he and his spouse earned less than $150,000.

Based on his 2019 tax return, John and his spouse would each qualify for the full $1,200. His spouse already received the $1,200 stimulus payment based on their 2018 tax return, but John only received $675 based on his 2018 tax return. This means that on his 2020 tax return, which John will file next year, he can claim the additional $525 ($1,200 - $675 amount received in 2020).

Do I Need to File a Tax Return, if I Receive Social Security or Railroad Retirement Benefits?

You may need to file a tax return depending on your situation, but the majority of seniors receiving Social Security benefits will not need to file a tax return to claim the stimulus payment. The IRS was going to require seniors to file a tax return, but it quickly reversed that decision this past Wednesday, when it received pushback on the unnecessary burden this would cause American retirees. The IRS will use the information on your SSA-1099 or RRB-1099 to determine your eligibility. If you are receiving your benefits deposited directly into your bank account, you can expect your stimulus payment to be direct deposited as well into the same account.

Example. Mary, 70 years old, is receiving Social Security, which is direct deposited into her bank account each month. She has not filed a tax return for the past five years. Last year, Mary’s 10-year-old granddaughter, Leah, started living with her. Mary is Leah’s primary guardian.

To claim her stimulus payment, Mary would not need to file a tax return. The IRS will use her SSA-1099 to determine her eligibility for the $1,200. The majority of Social Security recipients will qualify and not need to file a tax return. Since Mary’s Social Security benefits are being direct deposited into her account, her stimulus check will be direct deposited as well using the same bank information. However, if Leah is a qualifying child for Mary, Mary would need to file a tax return for 2019 to claim the additional $500 stimulus payment for Leah.

What if the IRS does not have my Bank Account Information for Direct Deposit?

If the IRS does not have your bank account information, the Treasury will be setting up a website, where you can update your bank account information with the IRS online. This will allow individuals to receive their stimulus payments by direct deposit, instead of waiting for the checks to be mailed.

The Bottom Line

The CARES Act was just passed, so additional information is being released almost daily. For additional information, check the IRS website here, and for updates from the IRS, check its website here.

Many questions are still unanswered at this time, including what Veterans and low-income earners will need to do to receive their stimulus payments. The Treasury will release information soon regarding the information needed and how to submit it, so some of the Americans, who need the stimulus payment the most, but are not required to file a tax return, will be able to submit the required information the IRS needs to process their stimulus checks. The hope is that people receiving Veterans’ benefits and disability will not need to do anything, since the IRS could obtain access to this information by cross checking other government databases.

If you are not sure if you need to file a 2018 or 2019 tax return to qualify for the stimulus payment, contact the tax professionals at Gudorf Tax Group to schedule an appointment. Making the right decision now could determine whether you qualify for the stimulus payment.