Question of the Week
Am I getting money from the government?
Happy Five-Minute Friday all! Good news. The Coronavirus Aid, Relief, and Economic Security Act (CARES) was passed by The House and signed by the president this afternoon. I know that lots of you want to know what’s in the law and how you may benefit.
It’s a big bill—more than 800 pages long—and it includes many different provisions that the government hopes will stimulate the economy. You may already have heard that some of the money will go directly to taxpayers. Today I’ll give you an overview of this provision and what you can expect.
Show me the money
The government is giving out $1,200 per adult, or $2,400 for married couples filing jointly. Additionally, families will receive $500 for every child under 17. Not everyone will get these checks. They are reduced or eliminated for higher earners.
For individual filers, the reduction begins at $75,000 in Adjusted Gross Income (AGI is line 8b of your form 1040). For joint filers the reduction begins at $150,000, and it’s $112,500 for those who file as heads of households. The benefit is reduced by $5 for every $100 of income above the threshold.
So if you’re a single filer, and your AGI was $85,000, you’re $10,000 over the limit. Divide that by $100 ($100) and then multiply it by $5. You get a reduction of $500. Instead of $1,200, you get $700.
The benefits disappear completely for individual filers who make more than $99,000, married couples filing jointly at $198,00 and head of household filers at $136,500.
The Planning Opportunity
For those of you above the income limits, you won’t be getting any money. You can skip this section. For those of you below the limits and entitled to the full amount, congrats! You will be getting money. You can also skip this section.
Those of you in this murky middle have a planning opportunity. That’s because in order to determine your AGI, the IRS will look at your 2019 return, if it’s filed. If it’s not filed, they will look at your 2018 return. So, if you haven’t filed your taxes yet, you can choose which year’s AGI will net you the biggest stimulus check.
Ask your tax preparer to estimate your AGI for 2019, then compare it to last year’s figure. If your 2018 AGI is lower and will get you more money, you can wait to file your return until after you get your money. If your 2019 is lower and will produce more money, you should file as soon as possible.
I’ve already had clients for whom we were about to file save with this strategy. Their 2018 AGI was $164,000. Their AGI for 2019 is $169,000. That means, they were entitled to a payment of $1,700 for 2018 and $1,450 for 2019. Overall, by waiting to file their 2019 return we could get you an additional $250. Waiting to file does mean they will have to wait a little bit longer on their 2019 refund check. But to them waiting another month is worth another $250.
Some other particulars
There are a couple of other particulars that you should know about:
- The IRS will use information on your return to directly deposit the amount into your account “as soon as possible.” According to the President and Treasury secretary, that could be as early as three weeks. If you don’t have direct deposit on file, they will mail you a check, which would take about two months.
- This is actually a refundable tax credit on your 2020 return. If next April, you file your tax 2020 return and are entitled to more money, you’ll get credited the difference. The good news is, if you got more than you should you won’t have to pay back any of the extra funds.
- If you haven’t filed a tax return the past two years. The Treasury can use the information from your 2019 From SSA-1009, Social Security Benefit Statement, Form RRB-1099, Social Security Equivalent Benefit Statement.
Quote of the Week
“Not everything that can be counted counts, and not everything that counts can be counted. – Albert Einstein
Task of the Week
Find your 2018 tax return and look at line 8b. Are you in the range to get a payment? Will 2019 be much different? More? Less? Use this information to figure out where you stand and if you need to get to a tax preparer right away.