The first program for individuals is recovery checks.
These recovery checks are one-off payments to individuals based on 2018 or 2019 income. You do not have to do anything to receive this money, it is automatic.
Here is how the program works:
Single taxpayers whose income was less than 75,000 will receive $1,200, and joint taxpayers whose income is less than 150,000 will receive $2,400. There is an additional $500 for each dependent child under 16.
Singles with an income of greater than $99,000, head of household with an income of greater than $112,000, and joint filers with an income over $198,000 do not qualify.
And then, there is a formula to figure out the payment in between. It works this way: the government will reduce the payment by 5% of the amount over the threshold.
Here is an example:
- Consider a married couple with no children and an income of $190,000.
- $190,000 is $40,000 above the $150,000 threshold.
- The rebate check is reduced by 5% of $40,000, which is $2000.
- Therefore, they would receive a check for $400. (i.e., $2400 – $2000 = $400)
Other key details for recovery check eligibility include:
- Nonresident aliens are not eligible for the rebate, yes, even though they filed taxes.
- The IRS will pay you even if you have an outstanding debt with the IRS (normally, the IRS would offset a refund by paying that debt first).
- The IRS will deposit the money directly into the account on the last filed return. The plan is for you to receive a letter confirming the disbursement. But you may get the money first. If you never receive the letter, there will be a number to call to have the check reissued.
- Income comes from your 2019 returns if you already filed. If not, they will look at your 2018 taxes. If you have not filed a return will not receive a check unless you did not file because you only have SSA-1099 or RRB-1099 (social security). The Treasury Department will review those forms for 2019 and send you a check.
- This program does not consider 2020 income. I do understand that your 2020 income may be much lower than 2019, read below for the unemployment benefits that are now available. We will likely see more stimulus packages as time goes on.
The second program includes changes to unemployment benefits.
The cares act significantly increases WHO qualifies for unemployment. So if you are an independent contractor, gig worker, freelancer, or sole proprietor, you likely qualify for unemployment.
Any employee who was furloughed or part of a layoff is eligible for state unemployment.
Here are the details:
- The state determines unemployment amounts, and it is typically 30-50% of your standard wage, but each state has a different formula, so check out the state unemployment website.
- Under the CARES act, you would receive the amount the state would already provide plus an additional $600 per week through July 31, 2020. For example, if a person is eligible for $300 weekly, they will receive $900 per week over four months or through July 31, 2020, whichever comes first.
- If your already unemployed due to COVID-19, you will receive the $600 weekly additional payment retroactively.
Another change is penalty-free retirement distributions
The CARES act allows you to withdraw up to $100,000 retirement in 2020 for COVID-19-related purposes without paying a 10% penalty. The distribution will be taxable over three years unless you elect to pay it back within those three years.
This rule applies to anyone who:
- Has been Diagnosed with COVID-19.
- Has family (spouse or dependent) who have been diagnosed with COVID-19.
- Has experienced adverse financial consequences related to COVID-19.
The act waives minimum distribution for 2020.
And caps on charitable contributions change as well.
- For the tax year 2020, you do not itemize deductions, you can deduct up to $300 in addition to the standard deduction for cash charitable contributions (not, however, stock contributions).
- The act removed the 60% adjusted gross income limitation for 2020 (other than from donor-advised funds).