(Author’s note: The bill was passed by Parliament and the Senate on 21 December 2020, after this piece was originally published.)
Congress has finally agreed on a COVID aid package. It is the first significant stimulus action from Congress since Coronavirus Aid, Relief, and Economic Security Act or CARES Act was signed into law in March 2020.
As with anything tax-related, there is a little bit of confusion. To help you fix this, here are a few questions and answers about what the bill looks like right now:
When will I receive my check? Checks are supposed to be produced quickly. Finance Minister Mnuchin indicated that provided the bill becomes law, checks will start popping up in bank accounts as early as next week.
How big will my check be? Checks will be $ 600 per. person – or $ 1,200 for married couples applying jointly – and an additional $ 600 per person. child.
What about boundaries for children? There are no limits to the number of children who qualify. The definition of child will be the same as for child tax deduction.
Wait, does that mean they have not inserted a dependent fix? Yes, that is exactly the case. In order to get the 600 USD per. child, the law uses the same definition for a child that you would use for child tax deduction. The sticking point for most parents for this purpose was age: the child must be under 17 at the end of the tax year. With the first round of checks, it meant that taxpayers were not eligible to receive the $ 600 extra payment for a child over the age of 16, even if they lived with you, ate your food, spent your money and slept in your house. An amendment was included in previous proposals to allow taxpayers with qualified relatives (regardless of their age) to receive checks, but to did not include in the final bill. In other words, children over the age of 17 do not qualify as breadwinners for stimulus checks.
Are there income limits on checks? The size of the checks would begin to phase out for those earning more than $ 75,000 ($ 150,000 for joint returns and $ 112,500 for household heads). This is adjusted gross income (AGI), not taxable income – that is, before your standard or specified deductions. You can see it on line 8b in your 2019 Form 1040:
Wait, how does a phasing out work? Phasing out means that the benefit decreases as the income increases. This is a 5% decrease, which means that for every $ 100 in income above these thresholds, your check will decrease by $ 5. So if you are a single filur earning $ 75,100, your check will be $ 595 ($ 600- $ 5). If you are a single file earning $ 85,000, your check will be $ 100 ($ 600- $ 500). If you do the quick math on it, it means you will phase out completely (meaning you get nothing) when you hit $ 87,000 as a single file, $ 174,000 as a married couple applying jointly, or $ 124,500 for household heads.
Does the phasing out also apply to the dependent part? Yes.
Why 2019? Just like in the CARES Act, it is treated as an advance credit for 2020, but to get payments out quickly, the IRS will rely on 2019 tax returns.
What if I earn less in 2020 than in 2019? Your check is determined by your 2020 income, but will be based on your 2019 tax returns. If you are entitled to more money, you can claim a credit on your 2020 federal tax return for the difference (as before).
Do I need a CPR number (SSN) to get a check? Yes. Or alternatively an adoption taxpayer identification number. Ditto for spouses and children.
But I heard something about ITINs? Yes. You must still have a valid SSN to get a check. However, if you are married to someone with an ITIN and you file jointly, this will not disqualify you you from getting a check. Additionally, if you are a married taxpayer applying jointly and at least one of you has a valid SSN, you will receive a check for your next of kin. This is different from the CARES law.
What about the deceased? Following the failure of the last set of stimulus checks, Congress made a point to include language about the deceased in this bill. Anyone who dies on or after 1 January 2020 is treated “as if the valid identification number of such a person were not included in the tax return for such a tax year.” This means no money for the deceased – and if the deceased appears on a joint return, the amount is reduced accordingly.
So how does this work? Do I have to file anything to get my check? As before, the checks are advances on credits for 2020. It will not affect your “normal” repayment in 2020, nor how much you owe – it is the same as before. However, as we have not yet filed a 2020 application, the IRS will “advance” your check based on your 2019 tax return.
What if I did not file a tax return for 2019? Fortunately, this time the language is very specific to allow non-files receiving benefits from the Social Security Administration, Railroad Retirement Board and Department of Veterans Affairs to receive automatic payments based on information already in the system. If you have not filed a tax return and your income is from social security benefits, the bill allows the Ministry of Finance to use the information on your 2019 form SSA-1099, Declaration on social securityform RRB-1099, Declaration on social security equivalent benefit. Treasury otherwise has the power to use the funds it deems effective to get payments out, so I expect to see another portal on IRS.gov.
How do I get my check? Direct deposit if you are lucky. The IRS will deposit your payment directly into the same bank account that you used to make a direct deposit on your last submitted return.
What if I’m moved? According to the law, the Treasury must send notification of the payment per. mail to your last known address. The notice will include how the payment was made and the amount of the payment. The notice will also include a telephone number to the relevant contact point of the Internal Revenue Service (IRS) if you have not received the payment. You can help make sure it gets to the right place by updating your address after a move. Normally you would do so on your tax return, but you can also submit one federal form 8822, Change of address (download as PDF). It usually takes four to six weeks to process an address change.
What if I expect a refund for the 2019 or 2020 tax year? Your refund for 2019 or 2020 will not be affected by the stimulus check.
Is my check taxable? No. As before, this is not taxable income.
What if I am currently receiving public benefits? Or do I have no income? You are entitled to a check even if you receive public benefits and even if you have no income.
Do I still get the check if I owe the IRS some money? Yes. If your refund would normally be seized to pay a tax debt, it should not happen here. There are no set-off provisions.
What if my check is normally seized for child support? In contrast to the CARES Act, there is also no set-off for child support.
Really no seizures? It does not have to be there. The bill states “no applicable payment shall be subject to enforcement, collection, attachment, attachment or other legal process, or the operation of any bankruptcy or insolvency law.”
But how do my creditors know to leave these payments alone? Under the CARES Act, when payments hit bank accounts, they can be subject to seizures and disbursements to meet existing obligations. Now, payments must be coded in an obvious way so that banks would not allow payments to be seized to meet certain legal obligations.
This is a done deal, right? Yes.
So no changes? I did not say that. After all, it’s 2020.
Not that I do not trust you, but where can I find it in writing? It’s still a bill, not a law, but you can find the details in the House version here (download as PDF). But before you click, it’s over 5,000 pages long (yes, really). I will replace it with the registered version after the vote.