Recently, the Congress passed the Coronavirus Aid, Relief and Economic Securities Act (CARES), a nearly $2 trillion dollar response to the COVID-19 (a.k.a. Wuhan Flu or Coronavirus) that currently continues to impact the United States. In short, the stimulus package offers each adult taxpayer a $1200 tax rebate and tax rebate of $500 for each qualifying dependent child.

Unemployment Expansion

For those who recently laid off, the act extends the length of unemployment benefit eligibility for an additional thirteen (13) weeks over and above the usual length of eligibility for state unemployment benefits. The act also increases state unemployment benefits by an additional $600 a week for up to four (4) months. Finally, the law makes anyone who cannot work because they got sick and ordered into quarantine eligible for unemployment benefits.

One of the significant provisions of the act is to extend unemployment insurance to self-employed workers and independent contractors. Under standard rules, most self-employed people or independent contractors are ineligible for unemployment (unless they employ themselves through a business with a separate existence such as a corporation, LLC or LLP.) Of course, not all self-employed people will qualify for unemployment benefits, and the rate of state pay may be less for self-employed workers; however, the act extends unemployment benefits to many workers normally ineligible for UI benefits. Check with your state unemployment insurance office for more details.

Small Business Relief

Additionally, small business owners can apply directly to the federal Small Business Administration (SBA) for an economic injury disaster grant of up to $10,000, which they need not repay. [Even though the link says “loan” if you click on the “Apply for Assistance” button it says “The loan advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application, and this loan advance will not have to be repaid.”] The form is simple, and can be completed online. It runs three screens and is easy to fill out.

The SBA will process the application and pay the money within three (3) days of application submission. These funds can be used to cover payroll, paid sick leave, and service other debts. Many state and local governments have business bailout programs. A list of resources for each state is available at the National Governors Association website to find resources by state. Your local Small Business Development Center is also a resource for business owners to find potential programs for which they may be eligible. 

Direct Cash Assistance for Individuals

The CARES act provides a direct tax rebate of $1,200 per adult – or $2,400 for married couples filing jointly – plus an additional $500 per child. The checks will be mailed out “as rapidly as possible,” with Treasury Secretary Mnuchin hinting they will arrive in April, other federal officials have cautioned taxpayers that the process might take as long as two months. However, taxpayers that used direct deposit to receive their last tax refund will get their money faster.

For those with an adjusted gross income (AGI) (income before standard or itemized deductions; not taxable income) of more than $75,000 or $150,000 for joint returns or $112,500 for heads of household, the rebate will decrease by $5 for every $100 of income above the threshold. Single filers with an AGI of more than $99,000 (or married filers with an AGI of more than $198,000, or heads of household with an AGI of more than $136,500) will get nothing. Line 8(b) of a taxpayer’s form 1040 shows their AGI.

A taxpayer can claim the $500 rebate for an unlimited number of qualifying children. A qualified child is one that was eligible for the child tax credit. A qualifying child must meet the certain criteria:

1. They must be a son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them.
2. They must younger than you (or your spouse if filing jointly) and be under age 19 at the end of the current tax year, OR younger than you (or your spouse if filing jointly) and under age 24 at the end of the current tax year, a student, OR any age if permanently and 100% disabled.
3. They must have lived with you for more than half of the year (some exceptions apply, including for school and the military).
4. They must have provided for less than half of their support for the year.
5. They must not be filing a joint return for the year unless a joint return is filed soley to claim a refund of withheld income tax or estimated tax paid).

If your child is in high school or college and does not meet these criteria, then you will not receive a $500 rebate for them. Furthermore, adult children that are dependents are ineligible to receive a separate check under the language in the bill.

To be eligible, the taxpayer (and the spouse or dependent) must have a Social Security Number or an adoption taxpayer identification number (ATIN).

These rebates are advances of 2020 refundable credits, meaning a taxpayer can take advantage of the tax credit even if they owe no taxes. Compare this with a nonrefundable credit where the tax credit is lost if the taxpayer does not have any tax liability. The IRS will calculate the advance based on the most recent tax return filed (2018 or 2019 tax return). Retired persons who do not file a return will receive rebates based on their 2019 Social Security Benefit Statement (Form SSA-1099) or 2019 Social Security Equivalent Benefit Statement (Form RRB-1099).

These advances will not affect a taxpayer’s “normal” tax refund for 2020 – when a taxpayer files their 2020 tax return, the IRS will compare numbers. If a taxpayer got less than they should have then their 2020 refund will be increased by the amount they should have gotten. If a taxpayer got more than they should have, the taxpayer should not have to pay it back. However, most taxpayers should get the correct amount. Finally, these credits are not taxable income and will not affect 2019 refunds. If you haven’t filed a 2018 or 2019 return, do so as soon as possible, even if your return is very simple and you owe nothing in taxes. You can speed your rebate by including your direct deposit banking information on your tax return.

If the IRS does not have a taxpayer’s direct deposit information, a web-portal is under development to allow taxpayers to provide their banking information to the IRS online. The Treasury Department will mail notice of payment by mail to the last known address for each taxpayer. This notice would include the method and amount of the rebate payment and a phone number for the Internal Revenue Service (IRS) if you didn’t receive the rebate.

People with no income, as well as those whose entire income comes from non-taxable means-tested benefit programs, such as SSI benefits, are eligible to receive these credits as well. Even those taxpayers who would have their refunds seized to pay a tax debt should not have this rebate intercepted and should receive these rebates. Those who’s refund check would be intercepted to pay child support are an exception to the “no offset” rule. These rebate checks can be seized for child support arrears.

Check the IRS website for more information and updates.