Wednesday, the Senate unanimously passed the CARES Act (Coronovirus Aid, Relief and Economic Security Act), and the House approved it this afternoon.  As widely reported, it includes recovery rebates (often referred to as stimulus checks) to be issued to most Americans.  Here are a few points to help you understand what to expect.

The basic rebate is $2,400 for those filing a joint return, and $1,200 for everyone else (nonresident aliens are not eligible).  There will be an additional rebate of $500 for each “qualifying” child; most kids you claim as a dependent under age 18, or under 24 and still in college, will probably qualify.  Nonresident aliens, and those claimed as a dependent by someone else, will not receive a rebate.

The rebate you actually receive may be reduced depending on your adjusted gross income (AGI).  AGI is not your wages, it is shown on line 8b of your 2019 Form 1040, or line 7 of your 2018 return.  AGI starts with wages, but then adds interest, dividend, capital gain and retirement income, the taxable portion of Social Security benefits, and so on.  It also includes income and subtracts losses from self employment, partnerships, S corporations, rentals, trusts, etc., as well as deducting adjustments to income such as deductible IRA or HSA contributions.  For the self-employed, it also deducts out SEP contributions, and deductions for self-employed health insurance and half of your self-employment tax.

You should get the full rebate amount if your AGI is less than $150,000 on a joint return, $112,500 for Head of Household, and $75,000 for single or married filing separate returns.  However, you’ll still get at least a partial payment if your AGI is less than $198,000 on a joint return, $136,500 for Head of Household, or $99,000 for single or separate.

Generally speaking, the AGI limits above will be based on your 2019 return if you have filed already, or 2018 if you haven’t, but that leaves a number of questions unanswered.  For example, what if you haven’t filed 2019 yet, and would get more based on that return once you do file, vs. 2018?  For that matter, might you get more if your 2020 income is even lower once you file next year?  If so, that could present some planning opportunities, especially if you are self-employed or are part of a partnership or S corporation.

Even if you have filed your 2019 return, it’s possible IRS will still look back to 2018; it just depends on how far your return has made it through their system at the time they start queueing up the rebates.

Many news reports have said Americans with little or no income won’t receive a check at all, or perhaps a reduced amount.  We don’t see any language like that in the final version of the bill.  If you receive Social Security or VA benefits and didn’t file a return, we believe you will still receive a rebate, but if you had no other income and didn’t file, we’re not sure.

IRS will probably issue your rebate via direct deposit if you chose to receive your 2018 or 2019 refunds that way, or if you used direct debit to pay a balance due.

In theory the distributions could happen as early as the first or second week of April, but early May seems more likely.  We suspect the rebates will come out in waves, so if you don’t get one in the first batch, you might be in a later group.

IRS is not supposed to withhold rebates to offset any back taxes or penalties you might still owe for prior years.

Keep a record of any rebates you receive, in case you need that information for later use, especially if you don’t get the full amount, or receive it in installments.

There are many unanswered questions at this early stage, so we’ll continue to pass along details as we learn more.