Do You Qualify for a $1,200 Cash Rebate?

The “CARES Act” – Coronavirus Aid, Relief, and Economic Security Act

As COVID-19 mandates continue to decimate the US economy, Congress and the White House have worked together to pass emergency legislation to provide an unprecedented $2 trillion of relief for American taxpayers and businesses.

The CARES Act is a new bill passed in the Senate with a bipartisan vote of 96-0 and has moved on to the House for voting (at the time this article was written). The bill includes a provision for up to $300 billion in immediate credits and rebates for American taxpayers who qualify.

The Cash Rebate – $1,200 Per Person and $500 Per Child

The US government is giving each resident a $1,200 cash rebate ($2,400 for married filing jointly) if you qualify. They are also giving you another $500 for each qualifying child.

You qualify for the full rebate if you:

make $75,000 or less ($150,000 married filing jointly) in adjusted gross income in 2018 or 2019 (depending on if you filed your 2019 tax return already.)
are a resident of the United States

The rebate phases out by 5% of every dollar your adjusted gross income is over the threshold. You don’t get any credit if you make more $99,000 or more as a single taxpayer, and $198,000 or more as a married filing jointly couple.

If you have NOT filed your 2019 tax return, then the cash rebate is based on your 2018 tax return. See our planning notes below on whether or not you should hold off on filing.

The text of the bill indicates it will coordinate with the Treasury to administer rebates to Americans. It might be based on direct deposit information provided to the Treasury any time after January 1, 2018. Expect a minimum 2-3 months for processing so the Treasury can verify your qualifications and identity before dispersing the amounts to you and your family.

If you were not a taxpayer in 2018 or 2019, you will receive a TAX CREDIT in lieu of a cash rebate. The tax credit is based on the same requirements as the rebate above, except the income determination is based on your 2020 tax return instead of 2018/2019 tax return.

If You Haven’t Filed 2019, You Could Get MORE Rebate

If you made $75,000 or more in 2019, your rebate check might be reduced or eliminated because of the phase-out. However, if you have NOT filed your 2019 income tax returns, you might be able to get more rebate if you made LESS in 2018 than in 2019! Check the 2018 income tax return you filed to see if you would be eligible for more rebate.

If you haven’t filed your 2019 tax return and you made less in 2018, you should WAIT until after you get your rebate before filing your 2019 tax return so you can get a bigger rebate.

Unfortunately, taxpayers who have already filed their 2019 tax return don’t have an option. They must look at a rebate based on their 2019 return. Sometimes it pays to procrastinate.

Don’t forget that the IRS granted taxpayers an automatic extension of time to file and pay their 2019 taxes through July 15 (and you can always file an extension to October 15).

Illustration of Cash Rebate Based on 2018 Filer

Example of Adjusted Gross Income for Single Taxpayer:

2018 adjusted gross income: $85,000
Base Rebate: $1,200
Reduction: ($85,000 – $75,000) = $10,000 * 5% = $500
Reduced Rebate: $1,200 – $500 = $700

Taxpayer will receive a reduced rebate of $700.

Example of Adjusted Gross Income for Married Taxpayers with One Child:

2018 adjusted gross income: $170,000
Base Rebate: $1,200 + $1,200 + $500 = $2,900
Reduction: ($170,000 – $150,000) = $20,000 * 5% = $1,000
Reduced Rebate: $2,900 – $1,000 = $1,900

Taxpayer will receive a reduced rebate of $1,900.

Illustration of 2019 Tax Planning With Cash Rebates

Example of Adjusted Gross Income for Single Taxpayer:

2018 adjusted gross income: $75,000 (filed 2018 tax return)
2019 adjusted gross income: $84,000 (has not filed 2019 tax return)

Option 1: Taxpayer can wait to file their 2019 tax return and claim the full $1,200 rebate based on their 2018 adjusted gross income.

– OR –

Option 2: Taxpayer can file their 2019 tax return and claim a reduced rebate of $750 (you just lost $450).

Option 1 is better than Option 2 because you get the full rebate.

The contents of this article will be updated as the text of the bill is updated, when more regulations and guidance are issued, and when this bill is passed by the House and signed into law by the President.

If you have any question on how this might apply to you and if you need to defer filing your 2019 tax return to maximize your rebate checks, please contact my office at bryan@clevertaxes.com.

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