Posted on 03/29/2020 8:24:29 AM PDT by texas booster
Rebates for Individuals (§ 2201)
The most wide-reaching provision in the law provides “2020 recovery rebates for individuals.” These rebates, which are characterized as credits against 2020 taxable income, will be issued in the amount of $1,200 for “eligible individuals” or $2,400 for “eligible individuals” filing a joint return. In addition, “eligible individuals” will receive $500 for each “qualifying child,” as defined by IRC § 24(c), for purposes of the child tax credit. This generally includes dependent children under the age of 17 for whom the individual has a social security number.
“Eligible individuals” include “any individual” except for:
Nonresident alien individuals Individuals who can be considered a dependent of another individual An Estate or Trust
AGI Phaseout
The amount of the recovery rebate credit is reduced by five percent of the amount by which a taxpayer’s adjusted gross income exceeds $150,000 for joint return filers, $112,500 for those filing head of household, or $75,000 for other taxpayers.
The recovery rebate is to be “treated as allowed” as a refundable tax credit.
Note: Although called a “credit against 2020 taxable income,” recovery rebate credits are wholly refundable credits for which no taxable income is required.
Determining the Recovery Rebate Amount
To allow IRS to efficiently determine the amount of the recovery rebate credit for each individual and pay that amount quickly, the law defines an “advance refund amount.” This is the amount of the recovery rebate credit that the Treasury Department will distribute to taxpayers “as rapidly as possible.” The “advance refund amount” is the amount that would have been allowed as a credit to that individual in 2019 had the recovery rebate credit been part of the law in 2019. In the case of an individual who has not filed a tax return for 2019, the Secretary may substitute taxable year 2018 for taxable year 2019. In other words, if no 2019 return is on file, the “advance refund amount” is the amount that would have been allowed as a credit to that individual in 2018 had the recovery rebate credit been part of the law in 2018.
If an individual did not file a return in 2018 or 2019, the Secretary is directed to use information for the individual’s 2019 calendar year provided in that person’s Social Security Benefit Statement or Social Security Equivalent Benefit Statement. The law states that those who were “eligible individuals” for the 2019 taxable year (or the 2018 taxable year if the 2019 return has not been filed) are treated as having made a tax payment in the amount equal to the “advance refund amount” for that taxable year.
Advance Refund Payments
The Treasury Department is instructed to distribute to taxpayers “as rapidly as possible” an advance refund of the recovery rebate credit. The law directs that the Secretary may certify and disburse the advance refund payments electronically to an account to which the payee has authorized, on or after January 1, 2018, the delivery of a tax refund. If direct deposit is not available, the IRS will mail a check to the address on record. No interest is allowed on any overpayment attributable to these advance rebate payments. Within 15 days of the date the advance refund payment is distributed, notice of the payment shall be mailed to the taxpayer’s last known address.
Reconciling the Advance Refund Payment and the Recovery Rebate Credit
The law states that when filing the 2020 return, the amount of the 2020 recovery rebate credit will be reduced (but not below zero) by the aggregate refunds and credits made or allowable to the taxpayer through an advance refund payment. With joint filers, half of each credit is treated as made or allowed to each individual.
Considerations
The statutory language provides that if the advance refund payment sent to the taxpayer was more than the 2020 recovery rebate credit calculated at the time the 2020 return is filed, the taxpayer will not be required to repay the difference. If, however, the taxpayer is entitled to a higher credit using actual 2020 data, the taxpayer will be entitled to recover the difference as an offset against 2020 tax liability or as a refundable credit. It thus appears that the provision is very taxpayer friendly. If 2019 income does not limit the credit, but 2020 income would, the taxpayer will receive the full credit. Conversely, if 2019 income would have limited the credit, but 2020 income does not, the taxpayer may claim the full credit when filing the 2020 return. This may also mean that some taxpayers might fare better if they have not filed a 2019 return, while others will fare better if they have.
IRS guidance will clarify these issues. It is clear that taxpayers will not be disadvantaged when a new child is born in 2020. They will receive a $500 credit for that child when they file their 2020 return. It is not clear, however, how IRS will calculate the advance refund payments for qualifying children who “aged out” of the system in 2019 or 2020. It does appear, however, that if the IRS does make a $500 payment for a child who turns 17 in 2020, the taxpayer will not be required to repay that amount.
This is a more detailed discussion of the $1200 socialism starter kit from Congress, how the IRS will interpret the law and how we may get some government dough.
All sorts of twists and turns in the law, please note that there will be several similar discussions on tax forums and accounting forums.
I excerpted only the individual portions of the discussion. Lots more to read.
If only they could have refunded us $8000 each instead of squandering it on the $6 trillion Bush-Obama Endless Wars. Or (God forbid!) pay down the friggin debt!
In reading my comment above, I understand that many FReepers view this stimulus as a mistake, an idea which I share.
However, there are many FReepers and our relatives that honestly need the cash that this pump provides.
While we can decide on the merits of all of the business provisions this post is confines to the narrow discussion of the individual recovery credit, and how professionals think that it may be implemented.
This is all borrowed money from future years that will be paid back in the form of inflation.
So the government is fronting people some of their 2020 tax refund early? Is the money for the JFK Arts thingy also an advance? How could it be if they are a 501c3?
TAX REFUNDS (”rebates”) is exactly what we need followed by TAX CUTS -
NOT “stimulus” spending which stimulates nothing except more government and higher inflation.
Waiver of RMD Requirements
Section 2203 of the law temporarily waives Required Minimum Distributions for calendar year 2020 for a number of retirement plans and individual retirement accounts.
I believe this is my money. I like not having to pull 40 Gs out that I dont need and causing me to be bumped up into the next bracket. At least for 2020
Wish I pushed 2019 RMD into 2020,Oh well,I will take this
Thanks for posting this. First I had heard of this. I had a higher AGI in 2019 than in 2018, so if I file for 2019 I'll get less. I was planning on finalizing and filing my tax return today, but now I'll wait for a couple more weeks. I was planning on filing now so the amount I got would be closer to the final 2020 calculation.
Thank you for posting this.
After paying taxes all year long we still owe almost $10k every year when we file. Does this mean that when I do our 2020 taxes this will be added on and we’ll owe it too? We don’t really need it so was just gonna bank it anyway but jeez.
Between RMDs and IRA withdrawals, I have several clients for whom these provisions may affect.
Keep in mind that since this is treated as a 2020 refundable credit, the tax treatment will depend on your actions this year.
And there are several small rules concerning pulling out money from your IRAs AND 401k (big change), but that it still requires that we pay it back within three years.
I have heard that this will NOT count as taxable income. But if you still owe $10k after making estimated payments, are you below the $100k single/$200k joint AGI maximum level where you will get this stimulus check?
If you made or withdrew too much in 2019, there may be a provision that would allow you to get the $1200 credit by managing your 2020 income to keep it under $75,000 if single, and $150,000 if MFJ. Let's see how this rule is implemented.
Looks like it. And the people who usually get a fairly large refund due to the EITC will get at least $1200 less (and probably more like $2400 less). They won’t be happy about that. But at least it will make the deficit hit less. Just like the government to make the little guy pay...
The question to me is do we have to pay it back on the 2020 tax return if a dependent on your 2019 return is not claimed on the 2020 or something changes in your situation? It sounds like we don’t, but who knows what the rules will be by the time we file for 2020. If it’s done like this, we should be able to opt out of getting the check.
Special Rules for Use of Retirement Funds (§§ 2202, 2203)
Penalty-Free Distributions
Section 2202 of the CARES Act provides that a taxpayer may take up to $100,000 in distributions from a qualified retirement plan without being subject to the 10 percent penalty imposed by IRC § 72(t) if that distribution is “coronavirus-related.”
This includes distributions made on or after January 1, 2020, and before December 31, 2020, to:
individuals diagnosed with COVID-19,
individuals whose spouse or dependent was diagnosed with COVID-19, or
individuals who experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due the virus, being unable to work due to the lack of child care due to the virus, or closing or reducing hours of a business owned or operated by the individual due to the virus.
An individual receiving such a distribution may repay it within three years. In addition, the taxpayer may include the income from the distribution in gross income ratably over a period of three years.
Retirement Plan Loans
The law also relaxes the rules for loans from qualified plans, including temporarily increasing the loan limit from $50,000 to $100,000 and delaying repayment dates for some outstanding loans by one year.
Waiver of RMD Requirements
Section 2203 of the law temporarily waives Required Minimum Distributions for calendar year 2020 for a number of retirement plans and individual retirement accounts.
Charitable Contribution Provisions (§§ 2204, 2205)
Allowance of partial above-the-line deduction for charitable contributions
Section 2204 of the CARES Act provides that taxpayers who do not itemize deductions may take an above-the-line deduction on their 2020 return for qualified charitable contributions in an amount not to exceed $300.
Yeah, it’s all up in the air right now. Call the IRS two different times and get two different answers. Thanks a lot, IRS! I guess it’ll just be wait and see...
I'm thinking that I'm just going to send it back as an estimated payment so I owe less next April. Sending money I didn't work for and haven't become attached to is less painful than my usual April tax check.
I have a 22 year old dependent, we are the only ones on my returns. Will she receive the $1200 adult check or the $500 check or none at all? She has zero income.
My head aches from the IRS-type language! I never did like accounting, or IRS rules, and now I like them less.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.