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Somewhat Succinct Summary of the CARES Act. Thumbnail

Somewhat Succinct Summary of the CARES Act.

Part I – The Recovery Rebates

By Jon Aldrich

Wow, March has been a doozy of a month for all of us. A pandemic has hit the world causing everyone to fear for their health and that of loved ones.  Most of us are on orders to stay at home to reduce the spread of the COVID-19 virus. Stocks suffered their quickest 30% decline in history leading to the worst month for stocks since the Great Depression. And many parts of our nation’s economy are shut down as state and local governments have mandated these measures to try to slow the spread of the virus. This led to the biggest one week jump in unemployment claims in history to almost 3.3 million people. As you can see on the chart below, this dwarfs the worst periods of 2008-2009 and the early 1980’s when unemployment was extremely high.

In response to this and in addition to what the Federal Reserve has done over the last few weeks to try to help, the country and the markets were really waiting for a fiscal response from the U.S. Government. And what was signed into law by President Trump last Friday was a $2 TRILLION (that is correct, with a “T”) stimulus package and another catchy acronym for the stimulus known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act is helpful and a good starting point for more stimulus that is likely to come, but it does not solve all the issues, one of which being, getting the money into the hands of those who need it quickly, but is not likely to happen until sometime in May. However, for purposes of this article, I am going to just concentrate on summarizing the key provisions of the CARES Act that affect the majority of you and try not to get too much into the ins and outs of the logistics of it which could take several pages to explain. Thus, I am going to present, Just the Facts, Ma’am.

Note: I originally believed I could summarize everything from the CARES Act in one blog, but it soon became obvious that this will be a story with at least one and possibly several sequels. I am sure we may all be reading more books these days, and I don’t need to add another one to your list, so we are going to start with just the Recovery Rebates. There are plenty of other provisions that I want to discuss in upcoming posts, so stay tuned.

Recovery Rebates for Individuals:

This provision of the CARES Act is the one that receives the most interest from people, since so many are affected. Almost everyone wants to know how much they will be getting or if they will be getting anything at all. Essentially the Recovery Rebate is a refundable income tax credit against 2020 income based on either their 2018 or 2019 tax return, whichever is the latest one filed. (Remember, income tax returns are not due until July 15 this year). The amount is $1,200 per taxpayer that is not a dependent of another taxpayer (except for a spouse) and has a work-eligible Social Security Number. There is an additional $500 for each child that is under the age of 17.

So, a married couple could get $2,400 ($1,200 + $1,200) and if they had 2 children under the age of 17, could get another $1,000 ($500 + $500) for a total of $3,400. But let’s get to the fine print.

Of course, there are income limitations to receive the rebate and they are, Adjusted Gross Income (AGI) of:

  • Single = $75,000
  • Head of Household = $112,500
  • Married Filing Jointly = $150,000

The amounts are reduced by $5 for each $100 a taxpayer’s income exceeds the amounts above. Therefore, any rebate is completely phased out for Singles with incomes exceeding $99,000, Head of Households over $136,000, and Married Filing Jointly exceeding $198,000 of AGI. If there are children under 17, add another $10,000 per child to these amounts.

A couple other things to consider:

  • If you don’t qualify based on your 2019 income being too high, but you do qualify when you file your 2020 return, you will get the benefit of the rebate at that time. However, little good that does to someone with high income in 2019, but lost their job in 2020 due to the coronavirus. They will have to wait until this time next year to get the benefit of the stimulus rebate. (Maybe they should have just gave the rebates to everyone now, and worry about clawing it back next year)?
  • If you receive a rebate based on your 2019 income, but when you file your 2020 income you find out that you no longer qualify, the rebate does NOT need to be paid back.
  • There is some uncertainty as to the under age 17 for a qualifying child. Does it mean if your child was 16 on the 2018 return, but 17 in 2019 and you have not yet filed your 2019 return, it might make sense to hold of on filing the 2019 return until you receive the rebate?
  • For others that may have had a child in 2019, they would want to make sure their 2019 tax return is filed soon, because if the child was not on the 2018 return and they have not yet filed the 2019 return when the rebates get processed, the parents could miss out on the $500 for a child under 17.
  • College students are only eligible if they are not a dependent of their parents.
  • Senator Chuck Grassley (Iowa) has a FAQ for questions related to the Recovery Rebates.

How and When Will These be Paid?

This is the million-dollar question as there are millions of people that desperately need some assistance due to the fallout from COVID-19 on their employment status. The Treasury Department has repeatedly said these will be going out “as soon as possible” but the reality is there is a good chance that their ASAP may not be until sometime in May.

For those that receive Social Security it will come to the same bank account that their Social Security Benefits are deposited. For other taxpayers the rebate will be deposited to the account into which a taxpayers 2018/2019 refund was deposited. Other payments will be made to last known physical address on file.

You can see where this is headed. What if you changed bank accounts? What if you moved since you filed your last tax return? What if you don’t have a bank account and also moved? This is likely to turn into a nightmare for some people in these situations. The CARES Act does suggest that the IRS will provide a phone number to report these issues. I can only imagine how successful that is going to be.

There was a lot to discuss in just explaining the Recovery Rebates and I am sure I still did not hit on everything. There are a lot of other provisions in the CARES Act that affect many of you and I will discuss those in upcoming articles.