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Recovery Rebate Information

Recovery Rebate Information

Recovery rebate.
Economic impact payment.
Stimulus check.

No matter what they call it, your clients are asking you questions about the advance of a 2020 credit that they have received (or may not have received yet). Towards the end of the video, Tom shares some information on timing on when paper checks will be mailed out, depending on taxpayer AGI. Give it a watch or check out the video transcript below.

by Tom O’Saben, EA

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Hello again, everybody. I’d like to thank you for participating in this week’s University of Illinois Tax School blog. This is Tom O’Saben, Assistant Director of Professional Education and Outreach coming to you, not from the campus in Urbana Champaign, but from the Southern Command Center at my office in Maryville, Illinois, while we’re still sheltering in place away from campus and expect to be for quite some time going into the future. What I’d like to do and talk about today is to discuss with you these recovery rebate or economic impact payments, the checks that clients have started to receive. They’re driving us crazy about the notion of thought I would get more, why did my neighbor get it and I didn’t, etc. I’m going to try to talk about the facts and circumstances of what these checks are. Some of you already know this, but it doesn’t hurt to hear it again. And then I’ve got some information for you as to timing, it would seem, as to when people are going to be receiving money, who hadn’t yet received it.

Let me tell you first and foremost that the recovery rebate checks are not 2018 or 2019 refunds, you might take that to mean something else. But what the checks are, are in advance of a credit that doesn’t yet exist. The credit will be on 2020 returns. Now I know that’s kind of confusing and it kind of freaks you out a little bit because you don’t have a form or a worksheet to take a look at. I agree with you. But what we’re being told, and what was in the CARES Act, says there will be a 2020 recovery rebate refundable credit. I’m sure there’ll be a worksheet and there will probably be a website that we can go to to see what people got (because they’re not going to remember if they got any money last year, just like when we’ve had economic stimulus checks in past years for those of you might remember that). But anyway, what we’re supposed to be able to do then is to true up the result on a 2020 return. By that I mean, let’s talk about, for example, someone who doesn’t get one at all this year for whatever reason. Maybe they’ve never had to file. Maybe we’ve got someone who’s been a dependent all along, and the first year that they’re independent or maybe got out of college or out on their own, or whatever it might be, is 2020. Well, there’s no 2018 return to look back at, there’s no 2019 return to look back at, should they go ahead and follow return with zeros on it. I don’t know if that makes sense or not. There was back and forth going on about that before the recovery rebate checks went out. And my advice would be, I really can’t look into somebody’s pocketbook. But at the same time, I believe that, you know what, you’re going to get the money, you just maybe have to wait a year. So that individual who now is independent, and then goes ahead and files (I’ll show you an example in just a little bit) would receive that on a 2020 return. Let me bring you an example a little bit closer to home.

I’ve talked about my firstborn child, my daughter, who now this year is going to be mom. I’m going to be a grandpa. It’s going to be the first grandchild for me. And so she and her husband are expecting in July. In fact, they know they’re going to have a little boy, his name is going to be Edward. I’m already called him Eddie and he’s not even born yet. So that being said, when my daughter and her husband filed their 2018 return, was little Eddie on there? No. On their 2019 return, which I haven’t done yet, is little Eddie on there? No, he isn’t born yet. So when we do their return in 2020, there’s going to be yes, the regular child tax credit, I will agree with you there. The regular child tax credit of  $2,000 assuming that their income level is such that it falls within the range. But there’s going to be another $500 that they will not have seen this year. I’m assuming that they’re going to get $1200 each, $2400. I’ll show you the standards here in just a moment as a refresher. So they should receive an economic stimulus of $2400 as a married couple filing jointly. But they’re $500 short, and little Eddie is not going to come along until July. So when we do the 2020 return, we’re going to true it up. I hope that helps to drive home the basic notion here that this isn’t a refund based on 18 or 19 results. It is an advance of a new credit for next year, which is another question I would like to answer. All things being equal, a single taxpayer normally gets $2,000 back. The question comes along, if everything is exactly the same in 2020, does this mean I’m only going to get $800? Because they already sent me $1200? The answer is no. As we know today, no. In fact, you should be looking at an additional $1200 that will zero out. It’ll true itself out on the return and you should get your $2,000 like normal. My daughter and her husband, as I just I described, if everything was being equal, I already told them you should be looking at the child tax credit of $2000, but they should be also getting this $500 off of the economic stimulus/ recovery rebate/whatever you want to call it, because we see different terms being used out there. I will tell you that the CARES Act calls it a recovery rebate. The IRS website calls it an economic impact payment. So I don’t know why there’s the two things when we’re dealing with basically the same law.

So hopefully that helps you for those clients who call you right now and say, “I am out of luck. What in the heck happened here? I’m not I’m not getting any money.” The situation might be and this could be planning for us that we may want to plan for 2020 and to see what happens.

So we can go ahead and pull up this first slide that we’ve got here, Gina. I want to talk about the law in general. So it’s Code Section 6428, as you see on the slide there. When we did our webinar back in April, I actually made a mistake and I said there was married filing jointly and everybody else. That’s not correct. There is the single filing status which you see on the slide. If adjusted gross income in 2018 or 2019 (this is to get the money now)  is under $75,000? Bang – $1200. If Head of Household (that’s what I missed in the webinar back in April) if that head of household adjusted gross income in 18, or 19, is under $112,500? Bang – $1200 (at least…I’m not counting dependents here). Married couple filing jointly again, as you see on the slide, adjusted gross income is less than $150,000? Bang – $1200 dollars each stimulus checks. If their direct deposit was used in either 2018 and/or 2019 returns, IRS already has that information. Clients who received checks or maybe they had a balance due in 2018 or 2019 had the opportunity to go to the IRS and provide that information. We also mentioned that there is then phaseout. When single taxpayers get above $75,000, when head of household get above $112,500, and when married couples get above $150,000, we start to lose 5% for every hundred dollars their income is over that level. So for the single people, that means that if their adjusted gross income is over $99,000 – gone. If the head of household adjusted gross income is over $136,500 – gone. If the married couple filing jointly, their adjusted gross income is over $198,000 – gone. So this begs the first question of planning.

Looking at Glenda and Waldo, here’s their situation. In 2018, their AGI is $150,000. Based on the on the circumstances I just described to you, they would qualify for the rebate checks, wouldn’t they? In 2019, when you’re working on their tax return, their AGI is $320,000. So if the IRS were to go off of the 2019 AGI, there’s no stimulus check going out now. But does that mean they will never receive it? The answer is no. Remember, again, that this is an advance on a 2020 credit. So that’s where the planning comes in. Are there things that could be done this year? And I know there’s not a whole lot you can do if an individual is an employee, but say self employed, should they invest in equipment, etc, to where their income would be lower in 2020. And they could get that credit. Remember, the true up is going to be on the 2020 return. However, what we have determined here at the University of Illinois Tax School, is when we read the law and the CARES Act, it says that in doing the true up, in no case shall it be less than zero. What does that mean in English? Taxpayers should not have to pay it back. So that should answer a lot of the questions and the one I just answered before where if I’m normally getting $2,000 back, I’m a single guy, doesn’t mean I’m only going to get $800 back in 2020? If everything was exactly the same, the answer should also be no. The $1200 should have been or should be additional. So I think that’s an important consideration to have as well.

So I mentioned before about the dependents. So if we can go to the next slide that we’ve got here, Gina. Here, we’ve got Jenny. So Jenny was a dependent in 2018. She was still in school. Well, in 2019, she graduated, she’s got a job. She’s out on her own. Maybe she’s still living at home, who knows, but she is now independent. Would it make sense for us to get her 2019 return filed as quickly as possible? The answer appears to be yes. With a caveat that I don’t have an answer for you and neither do you. That is a term in the CARES Act and that the IRS uses called the date of determination and that’s what I was trying to find. I spent a lot of time,  a lot of searching and I found bupkis in deciding when is the date of determination for them to send out these economic stimulus checks, these recovery rebates, whatever you want to call it. Because inquiring minds would like to know, what’s the drop dead date? Are we going to go off the 2018 numbers? Or we’re going to go off the 2019 numbers? Nobody knows. Because in the situation I just described with Glenda and Waldo, if that 2019 return gets filed too soon, their income was way too high. So they’re not looking at a recovery rebate, based on 2019. Would it have made sense to hold that return until July 15? I don’t think there’s anything illegal about doing that. They get their recovery rebate check, then we file the 2019 return. And on 2020 we shouldn’t have to owe it back. So with Jenny, it’s just the opposite. She’s a dependent over the age of 16 in 2018. There’s no $500 for mom and dad. So, Jenny, now independent, let’s say she’s making I don’t know, $50,000/$60,000. Would it make sense to get a return filed as soon as possible? I would say yes. But once again, let’s just say you file it now, we’re still within that window until July 15, correct? Before we’d have to file an extension. Is it possible that Jenny will not get a check during 2019? And the answer is, maybe, because we don’t have a date assigned to that date of determination. But again, as I mentioned, before, all is not lost. Deciding what Jenny’s income is going to be in 2020 or trying to project what her income is going to be in 2020 – could she in fact receive that $1200 when her return is filed in the spring? And the answer is absolutely yes. So let’s get that straight so we understand.

So the next thing I’d like to do is I’d like to talk about paper stimulus checks. I just found this in the last couple of days, and I thought it was useful. We have everybody out there losing their minds over the fact that somebody got a check and I haven’t gotten my check yet. And what about the people who don’t have to file? Well, here’s one of the things (and I don’t have a slide for you on this) – but I did read this today, which said that individuals who don’t have to file a return… Who are they? The people that have social security, or veterans benefits, for example, and they didn’t want to go to the IRS website and provide banking information. What I saw today was that they should be receiving their paper checks the same way they receive their social security or veterans benefits. So I don’t know if anybody that I know of where social security is not direct deposited. I thought they stopped checks years ago. So for Social Security recipients, IRS already has the banking information, unless it’s been changed. I’ve been hearing that feedback from some banker friends about all that that they’ve been dealing with. So I think that’s important to consider. Those social security recipients should be receiving it and  didn’t have to file a tax return. That was cleared up some weeks ago. But they should be receiving it about the same way they receive their social security benefits. So I would assume those would be coming out now in May. Now, again, the CARES Act says that if checks are sent out, and there’s even some language in the CARES Act that talks about typographical errors or clerical errors. Again, they don’t have to be returned. However, here’s the controversy we have going on right now. Secretary Mnuchin was quoted just the other day said that checks are sent out for decedents, we the Treasury, expect recipients to send those checks back. The AICPA commented and said well, wait a minute. That isn’t what the CARES Act says. It says if money is sent out because of a typographical or clerical error, that’s all the taxpayers bad. So I’ll bring that close to home where I talk about my my sister-in-law,  who passed away in 2018. Well, her bank called my wife because she’s the executor of my deceased sister in law’s estate and there’s a stimulus check. Granted, the bank account was closed, so they sent it back. -So IRS is going to be issuing a paper check to the estate of my deceased sister-in law. And will my wife and her siblings have to send that money back? Secretary Mnuchin says, “I’d like you to.” The AICPA says, “you don’t have to.” So I want you to keep that in mind as well. And we’ll see if IRS comes along with some kind of tool or something within the next year, which says you know what, decedents shouldn’t have gotten this money. We want it back. I have a feeling in the long run, given the way the the economic hit has been that they’re not going to demand that money comes back.

So Gina, let’s make sure that slide is up talking about a paper stimulus checks. I want to give you a caution. I could not find anything at that gave me this definitive schedule. I got this based on a House Ways and Means Committee statement which said, additional payment dates. And then these were on CNET, in the Wall Street Journal, and also the Washington Post. So those are my sources. I don’t have an IRS Rev Proc to give you.

But you look at this and it may be helpful. And I really like what some of you are saying on Facebook, you’re saying, Look, guys, what I’m telling my clients is you’re just going to have to be patient and wait. Just because you haven’t gotten a check yet, doesn’t mean you’re not going to get one. Now, I will tell you that the IRS website does say they’ll go off of 2018 or 2019. But if you didn’t file a 2018 return and you don’t plan on filing a 2019, but let’s say you have a filing requirement? You’re out of luck. But could you get it on 2020? The answer is yes. We’re just talking about whether or not you get the money now. Let’s go and look at the chart. Listen, I’m just the piano player. I’m just the delivery boy, don’t blame me for this. But the IRS says, they’re going to start sending out – it started with April 24 – 5 million checks per week until they cover everybody who they believe is qualified. And take a look at that chart. It’s actually two slides. We have April 24 through June 26. And look what happens. They’re working up the AGI ladder. They’re starting at the lowest AGI and working their way up. So if you had somebody that had a net operating loss last year, in 2019, or in 2018, they’re probably going to be on the first list to get the money. But as you see and that slide went through June 26 – our next slide Gina, if we could pop that up. That deals with July 3 through September 11. So it says September 11 and beyond – anyone else that’s still due a check will be getting them between then and the end of the year. Please do yourself a favor. Don’t share this chart with your tax payers. Tell them that guidance is saying that the IRS is going to start sending out 5 million checks a week to the to the paper filers. The people that are retired and are not filing and only receive Social Security benefits – their checks should be coming in the same method and the same way that their social security checks come. So I would expect some would come here on May 3rd and I believe people also get their their payments in the middle of the month. That was done some some years ago. Other people – checks are going to be coming out based on Adjusted Gross Income throughout the summer, and I’d say the fall. So hopefully this has some information to help you. I know, like you, this is driving me crazy with people calling. They talk to their brother-in-law, they talk to their neighbor, and they’re told all of this stuff about well, you got to get that 2019 return filed or you’re not getting money. That’s why you didn’t get any money, because your 2019 return isn’t in. Bull. If there’s no information for 2018 or 2019, then yes, there’s not going to be a recovery check now. But remember, again, worst case scenario, depending on their income in 2020,  the taxpayer might get it then.

Well, I’ll tell you, I think the government is doing everything they can to provide accountants full employment. So I hope you’re able to take things a little bit slower since we’ve got more time to file returns this year (although our clients are just as nervous as ever, and antsy as ever). I guess that may have something to do with sheltering in place, but please take care of yourselves. Don’t forget to take care of your own health, and be patient and take a deep breath, and we’ll keep on talking with you. And for now, this is Tom O’Saben and for all of us here at the University of Illinois Tax School. I’m going to say goodbye for just a while.

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