UNDERSTANDING THE ECONOMIC STIMULUS PAYMENT

Here is a review of what we know about the recent economic stimulus payment.

All US residents who are not a dependent of another taxpayer and have a work-eligible Social Security number are entitled to a stimulus payment of up to $1,200, or $2,400 for married couples, with an additional $500 for each dependent child under age 17.

The amount of the check is based on your 2019 Adjusted Gross Income (AGI) – or your 2018 AGI if the 2019 return has not been filed or processed.  The payment phases out once your AGI exceeds $75,000 if single, $150,000 if married or $112,500 if you are considered a Head of Household. You will lose $5 of your payment for every $100 your AGI exceeds those thresholds.  Single individuals with an AGI of $99,000, heads of household with an AGI of more than $136,500 or more and married couples with an AGI of $198,000 or more, who have no dependent children, will not receive a payment. 

The phase-out threshold increases by $10,000 for each qualifying dependent child under age 17.  For example, the phaseout threshold for a Single taxpayer with minor dependents are:

One child: $109,000

Two children: $119,000

Three children: $129,000

KIPLINGER.COM has created a stimulus check calculator tool – go here.

In many cases the payment was calculated based on your 2018 AGI, because your 2019 Form 1040 or 1040-SR, if filed, had not been processed when the amount of the payment was calculated.  The IRS offices were closed from the end of March until June and your 2019 return may not have been processed.  So, your payment may be less than the actual amount to which you are entitled.  However, according to the IRS website, as of this writing, “The IRS is not able to correct or issue additional payments at this time and will provide further details on IRS.gov on the action people may need to take in the future.”

This payment is administered via new Internal Revenue Code Section 6428.  It is NOT taxable income.  The payment will be treated as an “advance credit”, like the Obamacare advance premium credit, and must be reconciled based on 2019 information when preparing your 2020 tax return next year.  If you are entitled to more than you received you can claim the additional amount as a refundable credit on your 2020 return.  If you received more than you should have you do not have to pay back the excess. 

Because for many the 2020 economic stimulus payment was calculated based on 2018 tax return information, those who were claimed as a dependent on their parents’ 2018 return but not on the 2019 return did not get a payment, even though they were entitled to receive one.  When these taxpayers file their 2020 tax return, they can claim the full amount of the $1,200 payment not received, within the AGI limitations, as a refundable credit.     

The IRS will issue a Notice 1444 (Your Economic Impact Payment) shortly after your payment has been issued.  The IRS recommends you keep this notice in your files.  When you file your 2020 tax return next year you will need to report the amount you received – not as taxable income but when reconciling the allowable credit. 

The IRS provides detailed answers to questions about the stimulus payment here.

Please understand that there is absolutely nothing your tax preparer can do to expedite the processing of your 2020 stimulus payment or the issuance of your stimulus payment check.  Do not ask your tax preparer why you have not received your stimulus payment yet, or when you will get it.

TTFN