Inside the CARES Act: Individual Tax Rebates Under the CARES Act of 2020

In response to the substantial financial effects of COVID-19 on individuals, Congress, through the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), created a form of relief through tax rebates for qualifying taxpayer individuals.

CARES Act Recovery Rebates

The CARES Act proposes recovery rebates of up to $1,200 for an individual taxpayer and $2,400 for joint filers. A taxpayer with children will also receive $500 for each child.  A typical family of four is eligible for a $3,400 rebate. To qualify for the maximum applicable rebate amount, a taxpayer cannot be a dependent of another taxpayer, must possess a work-eligible Social Security Number, and their adjusted gross income must be under the following:

For a taxpayer with adjusted gross income exceeding the above thresholds, the rebate amount starts to “phase out” or is reduced by $5 for each $100 that such taxpayer’s income exceeds the threshold. A rebate is completely phased-out for an adjusted gross income exceeding $99,000 for individuals; $146,500 for head of household filers with one child; and $198,000 for joint filers with no children. A typical family of four is not eligible if their adjusted gross income exceeds $218,000.

Income Tax Returns

Generally, no taxpayer action is required to receive a rebate. The rebate is based on the taxpayer’s 2020 income tax return but is advanced to a taxpayer based on their 2018 or 2019 income. The IRS will assess a taxpayer’s qualification for a rebate based on their 2018 tax return unless such taxpayer filed a 2019 return. Taxpayers who have not yet filed their 2019 return should consider the advantage of filing their 2019 return as soon as possible or using their 2018 return to determine their rebate amount and not filing their 2019 return until after taxpayers receive their rebate but by the due date.

If a taxpayer’s 2020 income is higher then 2018 or 2019, the taxpayer is not required to pay back the difference. If a taxpayer’s income is lower in 2020 than in 2018 or 2019, such taxpayer may be eligible for a tax credit equal to the difference of the rebate and any additional eligible amount based on their 2020 income tax return.

The rebate is classified as a credit against tax liability and as such will not be counted as taxable income. Most taxpayers will receive a rebate check or via direct deposit if the taxpayer provided the IRS with direct deposit information any time after January 1, 2018. Treasury Secretary Steven Mnuchin stated he expects most taxpayers to receive their rebate by April 17, 2020.

If you have any questions about this post or any other related matters, please email the Business Law Practice Group Co-Chairs, David Blatteis at dsblatteis@norris-law.com, Dolores Laputka at dlaputka@norris-law.com, or Graham Simmons at gsimmons@norris-law.com.

We will be keeping you informed about the CARES Act of 2020 through this “Inside the CARES Act” series on our Biz Law Blog. For other topics related to COVID-19, visit our Coronavirus Thought Leadership Connection.