By now you have probably heard that the stimulus package (also known as Coronavirus Act, Relief, and Economic Security Act, or CARES Act) has been signed into law. The purpose of the bill is to give Americans a financial bridge until quarantine measures are lifted and people are able to go back to work.
The final version of the CARES Act is ((990))) pages long, and it will take accountants and financial planners weeks and months to sort out all the provisions. For now, here’s what you need to know.
Tax filing and payment deadline postponed to July 15
When it comes to individual and family tax returns for 2019, April 15th no more! The deadline for filing tax returns has been moved to July 15. There is no need to file an extension in order to take advantage of the postponed deadline.
However, you may still consider filing early. For example, if you expect a refund, filing your 2019 taxes as soon as possible will allow you to get that refund quicker.
Rebate checks are coming
As a part of the fiscal stimulus package, the CARES Act provides “Recovery Rebates” for individuals and families. This is the part that most people know about.
How much should you expect? It depends on your financial situation.
Individuals will receive up to $1,200, couples filing joint can expect up to $2,400, with an additional $500 per child. However, those numbers are adjusted depending on the adjusted gross income or AGI that you reported in 2018 or 2019 (the most recent year for which a filed tax return is available). If your AGI was over $75,000 as an individual or $150,000 as a couple, the rebate check will be reduced. Some people will receive no rebate at all.
One confusing thing about “Recovery Rebates” is that they are calculated based on the taxpayer’s 2018 or 2019 income tax return — but they are treated as a rebate against 2020 income return.
How does the rebate work?
The government will use 2018 or 2019 numbers to cut the initial checks. When the 2020 numbers become available, they will re-do the math. As a result, some people may get a smaller rebate (or no rebate at all) now, and another rebate later when the 2020 return shows that they “deserved” it.
In good news, if your 2020 tax return shows that you should have received less than what you actually received, the government won’t ask you to give the excess money back. So, once you receive the rebate check, you get to keep it.
What happens if you have had a life change since 2018?
Many people have had major life changes between 2018 and now. Some have lost their spouse or have gotten divorced. Young families may have had a child. And, of course, your reported adjusted gross income for 2018 may be higher than 2019 or 2020.
If that’s your situation, consider filing your 2019 return as soon as possible to communicate those changes to the IRS. There is a chance that they would then use your 2019 numbers to calculate the rebate. However, you need to know that these are estimated timelines and not a guarantee.
How will you get your rebate check?
If you are receiving Social Security benefits and qualify for a rebate, it will be direct-deposited into the same account. Same goes for those whose 2018 or 2019 tax return resulted in a refund that was distributed by direct deposit. All others will receive a check in the mail.
The timeline for those highly-anticipated checks is uncertain. According to the Treasury Department, it could be as soon as 3 weeks from the bill being signed into law (i.e. mid-April).
So, in summary
- Many families will receive a rebate check.
- The amount of the check will be based on your latest reported adjusted gross income (2018 or 2019)
- Some individuals and families should consider filing their 2019 taxes as soon as possible, especially if they are expecting a refund, or if reporting 2019 income could potentially result in a bigger refund payment.