What Individuals Should Know About the Recovery Rebate Credit
The CARES Act is short for the Coronavirus Aid, Relief, and Economic Security Act and is essentially a stimulus package to help individuals, families, and small businesses through these uncertain times. One important aspect of the CARES Act is the Recovery Rebate Credit (stimulus check).
So, what is the Recovery Rebate Credit?
The act provides payments to taxpayers in the form of a Recovery Rebate Credit. This is a maximum credit of $1,200 for each eligible individual (so $2,400 for two eligible individuals
who file a joint return), plus $500 for each qualifying child. With that in mind, the maximum credit amount is reduced (but not below zero) by five percent of the taxpayer’s AGI that exceeds:
- $150,000 for joint filers—so the $2,400 credit phases out completely at $198,000
- $112,500 for a head of household—so the $1,200 credit phases out completely at $136,500
- $75,000 for any other taxpayer—so the $1,200 credit phases out completely at $99,000
Who is eligible?
Eligible individuals are entitled to a Recovery Rebate Credit for their first tax year beginning in
2020, however, the government will make advance payments of the credit as soon as possible,
with eligibility and credit amounts based on information from 2019 or 2018 tax return. Qualified individuals should file a return to receive the stimulus payment. The Recovery Rebate Credit is fully refundable, but it is phased out for higher-income taxpayers and is based on 2019 tax returns, or 2018 if 2019 has not been filed. Those not filing a return will not receive a refund unless they provide an address.
Who is not eligible?
- Individuals without a Social Security number
- Individuals who are another taxpayer’s dependent
- Nonresident aliens or people who are not US citizens or residents (immigrants or citizens living abroad are not excluded)
What is the refund process?
Advance refunds may be paid in one of two ways:
- Electronically to a bank account that was provided on or after January 1, 2018.
- In those cases where banking information is not provided, the IRS plans to develop a web-based portal so that this information can be provided.
- Fifteen days after the payment is made a notice will be mailed by the IRS to the last known address.
So, to summarize a little bit, if your income is within the limits we mentioned above, you should start to get a little excited about the money headed your way. Keep in mind that this credit will be direct deposited into your last known bank account, and that you may need to update this information with the IRS. Hopefully, this can provide you with a little positivity in these uncertain times.
If you would like to discuss your current financial situation and what the CARES Act means for you, please reach out to us at pwa@keatinginc.com.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Content provided herein is based on our interpretation of the Care Act Stimulus and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the Care Act Stimulus.
