Recovery Checks Under the CARES Act

by Mandy Hicks

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law by President Trump. The CARES Act is designed to provide relief to taxpayers affected by the novel coronavirus (COVID-19). The most direct way the CARES Act is providing relief is through recovery checks, also referred to as stimulus checks because the intent is for taxpayers to use these funds to stimulate the affected economy. In this article we have summarized the most important information you need to know about these recovery checks.

Who is eligible to receive a recovery check?

Any individual who is not (1) a nonresident alien, (2) an individual who can be claimed as a dependent on someone’s tax return, and (3) an estate or trust. This means that college students who file their own returns, but are claimed as dependents by their parents, are ineligible. Additionally, any other adults, such as an aging parent, who has been claimed on someone else’s return is not eligible for a recovery check.

An eligible individual must also have a valid social security number or, in the case of a qualifying child who is adopted or placed for adoption, the child’s adoption taxpayer identification number can be used instead.

An eligible individual must have filed a tax return for 2018 or 2019. If you have filed both, the IRS will use your 2019 return. If you have not filed your 2019 return, but have had significant changes from 2018 – including the birth of a child, loss of income, etc. – consider filing a 2019 as soon as possible. For low-income seniors who have not filed returns for 2018 and 2019, the IRS will utilize Form SSA-1099 or Form RRB-1099 instead.

How much of a check can I receive?

The amount of your check will depend on your filing status and if you have any qualifying children. Single filers with adjusted gross income (“AGI”) under $75,000 and head of households with AGI under $112,500 will receive $1,200.00. Married filing jointly with AGI under $150,000.00 will receive $2,400.00 ($1,200.00 each). An additional $500.00 will be added for every qualifying child claimed on your return. In general, a qualifying child is a child under the age of 17 claimed as a dependent on your return. For example, a joint return with two children under 17 will receive $3,400.00; an individual filing as head of household with 3 children will receive $2,700.00.

For taxpayers above the thresholds listed above, the recovery amount is decreased by 5% of the excess above the amount for their filing status. This means the amount is completely phased out for single filers with AGI exceeding $99,000, for head of household filers with one child with AGI at $146,500, and for joint filers without children with AGI at $198,000. Of course, for joint and head of household filers, the complete phase-out threshold is higher depending on the amount of children they have – for a joint return with two children, the recovery amount is not completely phased out until their AGI exceeds $218,000.00.

How do I receive my check?

No action is required if you have filed a 2018 or 2019 tax return. If you previously authorized the IRS to direct deposit a refund into your account on either of these returns, then they will direct deposit your recovery check in the same manner. Otherwise, you will receive a paper check. The IRS will also send out a notice to your last known address detailing how they issued your recovery check, the amount, and a phone number for a point of contact at the IRS to contact if you do not receive your funds.

When will I receive my check?

The IRS is to start issuing recovery checks as rapidly as possible. However, expect it to take at least three weeks. Treasury Secretary Steven Mnuchin has indicated that you should begin to look for your checks around April 16, 2020 – those receiving paper checks should expect it to take a little longer.

What if I don’t qualify today for a check?

The recovery checks are an advance on a tax credit for the year 2020. If your income for 2019, or 2018 as applicable, is above the threshold for your filing status, but you have lower income in 2020, then you will be able to claim the credit on your 2020 tax return in 2021.

Is the recovery amount taxable?

No. Like other refundable tax credits, such as the child tax credit, the recovery amount is not taxable.

Will I have to pay back my recovery check due to changes on my 2020 return?

No. The U.S. Senate Committee on Finance has made it clear that if the recovery amount you qualify based on 2020 income is less than what you qualified for based on your 2019 tax return, the amount does not need to be paid back. This is good news for anyone who has seen an increase in income for 2020, parents whose children will age-out in 2020, and divorced parents who alternate claiming their children as dependents on their tax returns.

Will my recovery check be subject to garnishment?

With one exception, no. The CARES Act exempts this check from nearly all administrative offsets that would reduce tax refunds, such as past due taxes and student loan payments. However, past due child support payments where states have reported to the Treasury Department will still be recovered from the check.

If you have any additional questions about the recovery checks under the CARES Act or subsequent tax implications, please call the ELPO Law office at 270-781-6500.