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CARES Act: How Much Will You Receive?

April 2, 2020

One of the most touted benefits of the CARES Act are direct payments that will be made to individuals. These payments take the form of a refundable income tax credit against 2020 income, this means you will receive a check from Uncle Sam as long as your income doesn’t exceed certain thresholds (and it’s not a loan, you don’t have to pay it back).

How Much Will I Receive?

The payments are based on your Adjusted Gross Income or AGI. AGI is on line 8b of your 1040 tax return, but is really just your total income before any deductions are applied (total income is reduced by pre-tax 403(b) and 457(b) contributions). As long as your AGI does not exceed $75,000 for a single taxpayer or $150,000 for married filing joint, you will receive the following amounts:

  • Single $1,200
  • Married Filing Joint $2,400
  • Each Qualifying Child $500

A qualifying child is one who is under 17 for 2020.

Say you are a family of four and both children are under 17 for all of 2020, your Recovery Rebate check will be $3,400 ($1,200 + $1,200 + $500 + $500) as long as your AGI is under $150,000.

Phase Outs For High Income

For those with AGI over $150,000, you’re not out of luck, but you will see reduced payments. Basically, for every dollar above the AGI limits your Recovery Rebate check will be reduced by 5%. Let’s say you are married filing jointly with AGI of $175,000. Using the above scenario (family of four, two children under 17), your check would be reduced by $1,250 for a net check of $2,150 ($25,000 in excess of the $150,000 limit multiplied by 5%). Each individual or family will have a different maximum phase out based on the number of kids they claim as dependents who are under 17.

But how does the IRS know your AGI for 2020? They don’t, so they will instead use your 2018 AGI or your 2019 AGI if you’ve already filed your tax return this year. These tax returns are not the final say however, when you file your 2020 tax return (in 2021), if your AGI is lower, you will receive whatever credit amount you would have been entitled to now as either a refund or as a credit against your taxes. If your 2020 AGI exceeds the thresholds above and you received a Rebate check anyway, it’s essentially free money, no need to pay it back.

When Will The Checks Arrive and Where Will They Be Sent?

Some of this is still being worked out, but if you filed a return in the past two years and chose direct deposit for a refund, the Recovery Rebate will be automatically deposited to that account, if no direct deposit on file the checks will be mailed to your last known address that the IRS has on file for you (so update your address with the IRS). We are also hearing that the IRS is creating a website to help with this process. While the IRS is pushing to start issuing these rebates by April 6th, we are not holding our breath.

Simplified Adjusted Gross Income Calculation (sample teacher)

  • Gross Contract Pay $50,000
  • Defined Benefit Contribution $5,000
  • 403(b) Contribution (pre-tax) $2,500
  • Health Insurance $5,000
  • Flexible Spending Account $1,500

Adjusted Gross Income $36,000

Technically, the $36,000 is what goes on line 1 of your 1040 tax return. If you have no other income sources, it’s effectively your AGI.

by Scott Dauenhauer, CFP