Tommy Blackburn, CFP®, CPA, PFS
Because of a provision of the CARES Act, there will be rebates sent to individuals and families who meet certain income requirements. The rebate is up to $1,200 for people who file single and $2,400 for people who file married filing jointly. Additionally, there may be a rebate of up to $500 per qualifying child. The amounts begin to "phase-out" / reduce at the following AGI (adjusted gross income) levels :
- Single: $75,000 - $99,000
- Married filing jointly: $150,000 - $198,000
Essentially, the rebate reduces by $5 for every $100 over the income threshold and each qualified child adds another $10,000 of income to the applicable phase -out range.
For purposes of determining income (AGI), the IRS will look at your 2019 tax return or if you haven't filed this year, your 2018 tax return. If your income was lower in 2018, you may want to wait to file your 2019 taxes until after you've received your rebate. If your 2019 income is lower than 2018, you may want to file quickly, because the 2019 income is what the IRS will use to determine the rebate amount. This presents a planning opportunity, but the window is rapidly closing as the IRS rushes to get these rebates out to individuals and families.
What if your income suddenly decreases in 2020 (when COVID-19 is actually happening)? If your 2019 income disqualifies you from a tax rebate, but your 2020 income would qualify, then you will be able to get the rebate. However, you won't get it until 2021, when you file your 2020 tax return. The rebate is actually a credit for 2020 that is being paid in advance using older {2018 or 2019) income numbers.
Then, when 2020 taxes are filed, actual 2020 income will be looked at to see if you should have received a tax rebate. If you didn't qualify based on 2019 or 2018 income, but 2020 qualifies, you will receive the rebate, just a year later when your 2021 taxes are filed. If you receive a rebate based on 2019 or 2018 income, but your actual 2020 income disqualifies you, it doesn't matter. When your 2020 taxes are filed you will not have to repay it.
For example, if a married couple had $150,000 of income in 2019 and received the full $2,400 tax rebate, and then has income of $200,000 in 2020, they will not have to repay the rebate.
To see if you should file or delay filing taxes, please reach out to your financial planner to discuss this topic in the context of your financial plan.