What's in the CARES Act? Part One - Individual Tax Provisions

ISU Center for Agricultural Law and Taxation ^ | March 27, 2020 | Kristine A. Tidgren

[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.

[texas booster]

Adult filing a tax return = $1200.

Any dependent on a return = $500.

But what if the dependent graduated college in 2019 and became a taxpayer filing a return in 2020, then we think that the newly minted taxpayer would get the difference back on their 2020 return, $700.

We do not think that you would have to pay back the $500 you got for the 2019 dependent.

Or maybe you will. No final wording yet.

[Bell Bouy II]

Too me it looks pretty straight forward on the RMD side.
RMD Waived for 2020.

[texas booster]

Then try this on for size:

Exclusion for Certain Employer Payments of Student Loans (§ 2206)

Current law allows an employee to exclude from income up to $5,250 of employer payments made under an educational assistance program for the employee’s education. Section 2206 of the CARES Act allows student loan repayments by an employer to be included in qualifying payments under an educational assistance program. In other words, an employee can exclude from income up to $5,250 of student loan payments made on his or her behalf by an employer if no other educational assistance was provided. Employees may not also take a deduction for the interest on those payments.

Muddled writing comes from muddled thinking.

[texas booster]

And here is another provision that may have bearing:

This generally includes dependent children under the age of 17 for whom the individual has a social security number.

So if your dependent is in HS or college and you can rightly claim them, who gets their share?

[Mastador1]

See this is why congress put in the money for their pay increases...........they don’t have to give that back, only us peons.....crap wrong term since none of the peons crawling across our border have to give back jackshit either.

[terycarl]

will the cash payments to us $1,200 etc be taxable income for 2020

[sheana]

Looks like we’ll get a small check. Not that huge $1200 everyone else is gonna get! Lol
I wasn’t talking about taxable income. If this is actually just an advance on future refunds wouldn’t it also just be added back on if you already owe? Makes sense to me.

[texas booster]

Nope, this check will not be taxable.