Cares Act – Part 1
In light of the severe market disruption and economic impact of the COVID‐19 pandemic, we are monitoring the developments of the government’s response and communicating with individuals, families, and, small businesses. Due to the massive stimulus package, we are going to provide narratives on parts of the legislation. Today, we want to discuss the stimulus checks being provided to individuals and families.
Before we get started, I want to throw a caveat out there. This massive piece of legislation was put together in a matter of weeks. For comparison purposes, the Tax Cut and Jobs Act (TCJA) became law in December 2017. It was the biggest piece of tax legislation in 30 years and was put together in a matter of months. And, we are still seeking clarity on the TCJA. Therefore, we should anticipate changes due to corrections, guidance, and clarity on Congress’ intent, given the speed this legislation became law.
The Taxpayer’s Recovery Rebate. The CARES Act provides a refundable income tax credit against 2020
income up to $2,400 for married couples and $1,200 for other filers (ex. single and head of household). The
credit is increased for each child of the taxpayer under the age of 17. As you probably heard, the
government is going to advance the rebate based on the latest taxpayer information available – 2018 or
2019 tax return. Of course, not everyone is going to receive the rebate. The biggest obstacle is the
Adjusted Gross Income (AGI) limitation amounts, which are as follows:
Married Filing Jointly: $150,000
Head of Household: $112,500
Single and Others: $ 75,000
The credit is reduced by 5% for every $100 above the respective threshold. It is interesting to note that
two joint filing households with different number of qualifying dependents will exhaust the credit at
different AGI’s. For example, a couple with no qualifying dependents will reach the credit limit at an AGI
of $196,000. Another joint filing household with four qualifying dependents will reach the credit limit at
an AGI of $248,000 ([$2,400+$500+$500+$500+$500]/.05) +$150,000=$248,000.
Regarding to the AGI limitation, a taxpayer may want to delay filing the 2019 tax return if the 2018 tax
return shows an AGI that is more conducive to getting a rebate. Unfortunately, some taxpayers need help
now, but their 2018 and/or 2019 tax return(s) is/are going to prevent them from getting a check in the next
three weeks. In these cases where individuals were doing well until COVID‐19, they will have to wait until
the filing of their 2020 tax returns.
Finally, a person that is claimed as a dependent on a parent’s or other’s tax return will not get a check.
It has been estimated that 90% of taxpayers will receive a check.
Please contact me if you want to discuss how we can manage your AGI for 2020 and possibly get the rebate
in 2021 if you do not qualify for the tax rebate based on your AGI for 2018 and/or 2019 or have any other