Expertise Beyond the Numbers

Individual Recovery Rebates in the CARES Act

Updated 5/27/2020 at 9:05am ET

UPDATE 5/8 – In recent weeks, there have been some economic impact payments sent by the IRS to certain ineligible recipients. The IRS has recently updated its frequently asked questions (FAQs) support page to address payments sent to deceased taxpayers, incarcerated individuals, undocumented taxpayers, and others deemed ineligible to receive the payments. 

If the ineligible recipient received an economic impact payment by paper check, the IRS has instructed the payment to be returned as follows: 

  1. Write “Void” in the endorsement section on the back of the check. 
  2. Do not staple, bend, or paper clip the check. 
  3. Include a written note with the check stating the reason the payment is being returned. 
  4. Mail the voided check and note as soon as possible to the appropriate IRS location. The IRS has listed on their FAQ support page the appropriate locations. 

If the ineligible recipient received an economic impact payment by paper check, and the check has been cashed or if the payment was sent via a direct deposit, the IRS has instructed the payment to be returned as follows: 

  1. Make a personal check or money order payable to the “U.S. Treasury.” 2020EIP should be written on the check, along with the taxpayer’s identification number.  
  2. Include a written note with the check stating the reason the payment is being returned. 
  3. Mail the personal check or money order and note as soon as possible to the appropriate IRS location. The IRS has listed on their FAQ support page the appropriate locations. 

SC&H’s KEY TAKEAWAYS

  • Individual rebates of $1,200, or $2,400 for married couples who filed jointly (MFJ) – individuals and couples will receive $500 for each qualifying dependent child under the age of 17.
  • The government has signaled that payments have begun, and it is most likely that those taxpayers who have paid or received refunds electronically on prior year tax returns stand a greater chance of receiving their rebate refunds first.
  • If a 2019 income tax return has not yet been filed, the Treasury Department will use the AGI that was reported on the 2018 income tax return, if filed.
  • This is an “advanced or refundable tax credit” – any taxpayers with high AGI’s in 2018 and 2019, but less in 2020 – may obtain a credit on 2020 return for the difference.
  • Taxpayers are not required to pay back any portion of rebate check received on 2020 return.
  • The IRS will use the information on Form SSA-1099 and Form RRB-1099 for those Social Security recipients that have not filed tax returns in 2018 or 2019.
  • Treasury intends to process low-income taxpayers’ rebates first, while current estimates are that higher-income taxpayers in the phaseout range could wait into mid-September.

As part of the newly signed Coronavirus Aid, Relief, and Economic Security Act (CARES Act, H.R. 748, the Act), the U.S. federal government will be issuing individual recovery rebates to all U.S citizens or residents subject to certain income limitations. Individuals will receive rebate checks in the amount of $1,200, or $2,400 for married couples who filed jointly (MFJ). In addition to the rebate check, all individuals and couples will receive $500 for each qualifying dependent child under the age of 17. The amount of the rebate checks begins to phase out for those individuals who reported adjusted gross income (AGI) of $75,000 ($150,000 MFJ) or more on their 2019 federal income tax return. If a 2019 income tax return has not yet been filed, the Treasury Department will use the AGI that was reported on the 2018 income tax return, if filed. The amount of the rebate checks will gradually reduce by $5 for every $100 of the reported AGI that exceeds the phaseout floor of $75,000 ($150,000 MFJ). Individuals whose AGI was higher than $99,000 ($198,000 MFJ) will not receive any funds in the form of a rebate check.

The rebate checks operate as an “advanced or refundable tax credit”, meaning the credit itself was to be originally reported on the individual’s 2020 income tax return. This credit format will allow taxpayers who had high AGI amounts for 2018 and 2019, but less in 2020, to obtain a credit on their 2020 income tax return for the difference. Taxpayers will not be required to pay back any portion of the rebate check received on their 2020 income tax return. It is also important to note that this rebate check will not be considered taxable income.

Perhaps the biggest question that many eligible individuals are concerned with is how these rebate checks will be distributed, and when they can expect to receive these funds. It is most likely that those taxpayers who have paid or received refunds electronically on prior year tax returns stand a greater chance of receiving their rebate refunds before those that have traditionally mailed in their payments or have elected to receive a prior year refund check in the mail.

Other areas of concern include those who changed their address or bank account since their most recently filed income tax return. The easiest way to correct this is to file a 2019 income tax return with the updated address or bank account. However, it is important to note that the IRS will most likely then use the AGI that is reported on the 2019 income tax return, if the return is filed before the individual’s rebate check is issued. This could create a negative outcome for those taxpayers whose 2018 AGI is less than their 2019 AGI, and they were subject to the phaseout threshold of $75,000 ($150,000 MFJ) in one year compared to the other.

The U.S. Department of the Treasury initially stated that all rebate check recipients would have needed to have filed a tax return in 2018 or 2019 to receive a rebate check. This approach was met with an overwhelming amount of negative feedback, specifically from those groups advocating for Social Security recipients who often are below the income requirements for needing to file a federal tax return. As a result, the U.S. Department of the Treasury recently announced that the Internal Revenue Service will instead use the information on Form SSA-1099 and Form RRB-1099 for those Social Security recipients who did not file a return in 2018 or 2019.

The Washington Post has reported that Treasury plans to process low-income taxpayers’ rebates first, with a goal of issuing rebates to taxpayers with income up to $40,000 by May 15. Weekly issuances will apparently be made based on a schedule based on increasing income levels, with individuals whose income is near the top of the phaseout range waiting until as late as mid-September.

Individuals are reminded that they do not need to take any further action in order to receive their rebate checks. The government will not contact you requesting banking information, your social security number, or any other personally identifiable information. Any calls or emails requesting such information should be considered fraudulent.

SC&H Group’s Tax Teams will continue to monitor the disbursement of these recovery rebates. Please contact SC&H Group for further advice or questions.