Federal lawmakers have been launching multiple stimulus phases to provide financial relief this spring. Households and small businesses are receiving the most aid (so far) from the CARES Act that became law on March 27, 2020.
There are many relief measures in this $1.2 trillion stimulus act. A one-time stimulus check and enhanced unemployment benefits are two signature pieces of the CARES Act.
Despite the initial excitement, some are still waiting to receive their $1,200 economic impact payment—and may never receive the full amount. Unfortunately, the CARES Act may have unintentionally left them out.
Today, the House of Representatives is set to vote on the HEROES Act. Based on the reaction by Senate Republicans, the HEROES Act is unlikely to become law. But we can still study it because it did seek to amend the CARES Act.
The CARES Act, likely unintentionally, left a lot of Americans behind in its issuance of stimulus checks. The HEROES Act amended some of these situations- see which ones would have been fixed and which ones were ignored.
This can give us an indication of what Congress hopes to fix within the CARES Act in future stimulus bills.
Filing a Joint Tax Return Without a Social Security Number
You need a valid Social Security Number (SSN) to receive a stimulus payment. The CARES Act stimulus check requires each married taxpayer to have a Social Security Number if their tax filing status is “Married, filing jointly.”
Some taxpayers with a Social Security Number but are married to a non-U.S. citizen without a valid taxpayer identification number are not receiving a stimulus check or only receiving a $1,200 check. But this is only if their return is “Married, Filing Separately.”
The HEROES Act would make it easier to receive your CARES Act stimulus payment if one spouse doesn’t have a Social Security Number and only has an IRS Taxpayer Identification Number (ITIN). Right now, the IRS isn’t issuing stimulus checks for this complicated situation.
It’s possible for resident aliens with a Social Security Number to receive a stimulus check. Members of the military with spouses who do not yet have a Social Security Number may qualify for a $2,400 check plus $500 for qualifying children.
Your spouse won’t qualify for a rebate if they only have an ITIN and you do not serve in the armed forces. If your spouse receives a Social Security Number during 2020, they may still get a stimulus payment. But they may need to wait until filing a tax return for the current year.
Older Dependent Children
Many college students, and children at least age 17 years old, were left behind.
These young adults are old enough to receive the full $1,200 stimulus payment on their own but they can’t get a check as many of their parents still claim them on their taxes. Instead of the older child getting the full check like an adult taxpayer, the parent receives a $500 credit instead.
Parents may claim older children as a dependent when they provide at least half of their basic needs. While this exclusion may come as a surprise, the current IRS rules for Child Tax Credit applies to children age 16 or younger.
New college graduates can feel the financial pain from this stimulus check loophole as they enter an extremely weak job market. That $1,200 check could have bought essentials, serve as an apartment lease down payment, or make student loan payments (despite federal loans being deferred)
The IRS states these dependent-now-adults cannot claim the $700 difference on their 2020 tax return.
At least in this case, these recent graduates might be able to claim the full $1,200 rebate amount on their 2020 tax return if nobody else claims them on another 2020 tax return. They would get the stimulus next year in their refund, but it would not help them now.
The HEROES Act would change the calculation to use “dependents” and not just those who qualify for the child care tax credit. This would allow parents of dependent children age 17 and older to claim the $500 per child, whereas they would not qualify as the law is currently written.
Early Tax Filers
You’re likely familiar with the expression, “The early bird gets the worm.” Filing your taxes as soon as possible is a smart move in most years. However, being proactive may hurt you this year.
In mid-March, the federal government pushed the 2019 federal income tax filing deadline from April 15 to July 15, 2020.
As we don’t know how much you will earn in 2020, the IRS uses your 2019 or 2018 tax return to calculate your stimulus check amount. Already filing your 2019 tax return may prevent you from getting a check this spring if you’re income is too high.
This loophole affects you if your 2019 income falls within the income phaseout windows but your adjusted gross income 2018 is below $75,000 (singles) or $150,000 (married, filing jointly).
Waiting to file your 2019 taxes means you would get a check this spring if your 2018 income qualifies. There doesn’t appear to be a “clawback provision” where the IRS takes back some of your stimulus check balance if they overpay you.
There’s still a chance you can get a rebate on your 2020 taxes. You can qualify for the CARES Act recovery rebate in 2021 when your 2020 income falls below the upper income limit.
Single taxpayers get the full $1,200 rebate with an adjusted gross income below $75,000. You receive a reduced rebate amount with an income not exceeding $99,000.
Joint tax filers get the full $2,400 rebate with an annual income below $150,000. The IRS issues a partial rebate up to $198,000.
You will receive the full $500 per child rebate when your income qualifies for the entire $1,200 rebate. Otherwise, the IRS phases out the child rebate as you near the maximum income limit.
You File Your 2019 Taxes Late
Even though you have until July 15, 2020, to file your federal income taxes for 2019 without penalty, waiting too long to file can result in a smaller rebate.
The IRS uses your 2018 tax return if they process your stimulus check before you file your 2019 tax return.
Using your 2018 tax return can be a problem for these two potential reasons:
- Your 2019 income is less than your 2018 income
- A child was born or you adopted a child in 2019
While you get a smaller check this spring, you should get the remaining rebate at tax time. If your 2020 income happens to be even higher than your 2019 income, then you may not get the additional amount.
The IRS mails each household Notice 1444 approximately 15 days after sending your stimulus payment. All taxpayers should keep the form to report the payment amount on their taxes. If you believe the IRS still owes you money, this notice lets them accurately calculate the remaining credit due.
People Owe Child Support May Not Get a Check
The IRS is withholding the stimulus check from parents who owe child support payments. Garnishment happens when your name is on the Treasury Offset List. However, the IRS isn’t garnishing the economic income payment if you owe back taxes, have federal student loans in default, or other qualifying debts in collection status.
The HEROES Act would amend the CARES Act to give it the same protections enjoyed by Social Security benefits against seizure. It “shall not be subject to transfer, assignment, execution, levy, attachment, garnishment, or other legal process, or the operation of any bankruptcy or insolvency law, to the same extent as payments described in section 207 of the Social Security Act (42 U.S.C. 407).”
Recently Divorced Couples May Not Receive a Full Rebate
Parents who divorce in 2019 or 2020 may also be in a complex situation. Who gets the $500 rebate for each child can be difficult to determine. The IRS gives first preference to the parent who claims Head of household on their 2019 taxes as they have primary custody.
Your attorney may have you split the child portion or give the entire amount to your ex-spouse depending on your custody arrangement.
You won’t need to repay the IRS if you each receive a $500 payment.
A Family Member Dies or Becomes Incarcerated
You may need to repay some of your rebate if a family member dies in 2020. Incarcerated taxpayers cannot receive a stimulus payment either even though non-filers can get a stimulus check without earning any taxable income.
You will need to return your ineligible stimulus payment to the IRS by mail. You can send a personal check or money order if you got your rebate via direct deposit or have already cashed the paper rebate check. The IRS asks you to mail the paper check back in if you haven’t cashed it yet.
Several of these situations were addressed by the HEROES Act. Some were dealt with by other means, such as with IRS guidance that you should return checks sent to the deceased, and we will have to see what Congress is able to agree to before knowing what will actually get fixed.