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FAQ: Economic Impact Stimulus Payments

We’ve compiled a list of the 10 most frequently asked questions, and their answers for the Economic Impact Stimulus Payments

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We’ve compiled a list of the 10 most frequently asked questions, and their answers for the Economic Impact Stimulus Payments

Note: The terms “economic impact payment,” “stimulus payment,” and “advance refund” are all used interchangeably throughout the article. The statutory term is “advance refund,” the IRS refers to it as the “economic impact payment,” and the media has been referring to it as the “stimulus payment.”

Q1: Why is the individual stimulus payment included as one the tax provisions of the CARES Act?

The Act amends the Internal Revenue Code by adding a Recovery Rebate Credit for Individuals. Congress provided that “advance refunds” of the 2020 refundable tax credit should be distributed as rapidly as possible.  Congress likely structured the stimulus provision as an advance refund of a 2020 tax credit because the IRS is the best equipped to get money directly into the hands of individual taxpayers. Because the stimulus payment is an advance refund of a 2020 tax credit, upon filing the 2020 return, stimulus recipients will calculate their actual credit amount and reduce the 2020 credit claimed (but not below zero) by the stimulus payment already received.

Q2: Who is eligible for the recovery rebate credit/stimulus payment?

An eligible individual is defined as any individual other than (1) a nonresident alien individual (2) an individual who could be claimed as a dependent of another taxpayer, (3) an estate or trust. Valid social security numbers are required for all individuals included in the credit calculation (individual, spouse, children).  The credit is subject to phase-out limitations for taxpayers with adjusted gross income above certain thresholds (see Q3).

Q3: How is the credit calculated?

The credit is equal to the sum of $1,200 ($2,400 for MFJ) plus $500 for each qualifying child (under the age of 17) of the taxpayer. The credit does start to phase out for taxpayers with adjusted gross income above certain thresholds. The amount of credit is reduced (but not below zero) by 5% to the extent the taxpayer’s AGI exceeds the following:

  • $150,000 (MFJ)
  • 112,500 (HOH)
  • $75,000 (all other taxpayers)

Q4: What information will the IRS use to determine my advance refund payment?

For taxpayers who have already filed 2019 tax returns, the IRS will determine their eligibility and credit amount based on their filing status, adjusted gross income, and qualifying children in 2019. For taxpayers who have not yet filed 2019 returns, the IRS will determine their eligibility based on their filing status, adjusted gross income, and qualifying children in 2018.

Q5: Can you give us an example of how the advance refund is calculated?

Assume a married taxpayer has 3 children in 2019 and he and his wife filed a join return in 2019. His 2019 filed return reported $210,000 of adjusted gross income. The total preliminary credit is equal to $3,900 ($2,400 + $500 + $500 + $500). Because the taxpayer’s AGI exceeds the $150,000 AGI limitation (for joint returns), the credit must be reduced by 5% of the excess. The AGI exceeds the limit by $60,000. Therefore, the credit of $3,900 must be reduced by $3,000 (5% x $60,000) resulting in a total expected advance refund of $900.

Q6: Will I have to do anything to receive my advance refund?

No, if you have filed a 2019 or 2018 return, the IRS will determine your eligibility based on you adjusted gross income, filing status, and qualifying children in 2019 (or 2018 if you have not yet filed 2019). If you have not yet filed a 2018 or 2019 return, you may need to take certain steps to receive your payment. See Q7.

Q7: Will taxpayers who haven’t filed tax returns in 2018 or 2019 be able to receive an advance refund?

Initial guidance from the IRS indicated that people who are not typically required to file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax. IRS.gov/coronavirus will soon provide information instructing people in these groups on how to file a 2019 tax return with simple, but necessary, information including their filing status, number of dependents and direct deposit bank account information.

However, in response to significant criticism from multiple members of Congress, the IRS issued a press release on April 1, 2020 indicating that “Social Security beneficiaries who are not typically required to file tax returns will not need to file an abbreviated tax return to receive an Economic Impact Payment. Instead, payments will be automatically deposited into their bank accounts…The IRS will use the information on the Form SSA-1099 and Form RRB-1099 to generate $1,200 Economic Impact Payments to Social Security recipients who did not file tax returns in 2018 or 2019. Recipients will receive these payments as a direct deposit or by paper check, just as they would normally receive their benefits.”

The relief from filing a simple tax return appears to be limited to social security beneficiaries. There are other individuals such as low-income workers and certain veterans and individuals with disabilities who aren’t required to file a tax return, but they are still eligible for the Economic Impact Payments. Taxpayers can check the IRS.gov tool – Do I Need to File a Tax Return? – to see if they have a filing requirement.

If you don’t have to file, use the “Non-Filers: Enter Payment Info Here” application to provide simple information so you can get your payment.
Therefore, it still appears that low-income taxpayers, and other taxpayers who are not required to file returns but are not social security beneficiaries will still need to file the “simple tax return” to receive the stimulus.

For those taxpayers who are required to file a tax return and have not yet filed their 2018 or 2019 tax return, the IRS urges anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return. these economic impact payments will be available throughout the rest of 2020.

Q8: When and how can taxpayers expect to receive these payments?

The statute provides that Treasury should distribute the stimulus payments “as rapidly as possible.” Distribution of direct deposit payments has already began and paper checks will follow shortly after.

Q9: How will the IRS know where to send my payment?

The IRS will calculate and automatically send the economic impact payment to those who have provided banking account information on a 2018 or 2019 tax return. All other taxpayers will receive their payment via check (but see Q10 below).

Q10: What can taxpayers do if the IRS does not have their direct deposit information on file and they prefer a faster electronic delivery over check?

You have the following options for providing bank account information.
Your bank account information for your economic impact payment is usually captured from:

If Get My Payment indicates your payment is pending or has been processed, you cannot change your bank account information.

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Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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