The Federal government would make direct cash relief payments to individuals who meet certain qualifications if the U.S. House approves and the President signs the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), passed by the Senate late Wednesday. For most Michiganders, the money is to arrive from the IRS likely in April via direct deposit, or later if mailed.
Individuals earning up to $75,000 a year will be eligible to receive a $1,200 payment. Payment amounts begin phasing out for individuals making more than $75,000 and are eliminated for individuals making more than $99,000 a year (the payment amount falls by $5 for every $100 in income above $75,000).
Married couples are eligible to receive $2,400 as long as their adjusted gross income is under $150,000 a year. Again, above this amount of income, payments are phased out and eliminated for couples earning more than $198,000. Married couples will receive an additional $500 for every child.
Michiganders who file as a “head of household” (typically single parents with children) are eligible for $1,200 payment, but the income threshold and final phase out is higher (up to $112,500 with payment being phased out on those heads of household earning more than $136,500). As with single and married couples, heads of household will also receive an additional $500 per child.
Individuals on Social Security are eligible to receive a Coronavirus relief payment as long as their total income does not exceed the limit. Low-income Michiganders on Social Security who typically do not need to file a tax return, will receive a payment as long as they received a SSA-1099 form (the Social Security benefit statement). These payments will be made via the usual way that these individuals receive their Social Security payment.
Identifying eligible recipients and disbursing payments falls on the IRS. The IRS will use the most recent tax return information on file, either an individual already filed a 2019 tax return (the one most people are working on now), or the 2018 tax return if no 2019 tax return is on file. The IRS will also use the direct deposit information from the individual’s or couple’s 2019 return to send payments directly to their bank account. If no direct deposit details are disclosed on the return, the IRS will mail a physical check.
The Coronavirus relief payment is not taxable by the IRS (the state and local units have not addressed this as of yet). That said, there is a catch. Under the legislation, it is the individual’s or couple’s 2020 income that qualifies them for the payment. Of course, no one knows their total 2020 income yet, so the IRS is using tax return data from 2019 and 2018 to determine eligibility, amount, and payment. Therefore for some individuals and families, they may have to pay back some of the payment if their income for 2020 turns out to be more than the qualifying amount. Repayment will be determined and adjusted on the taxpayer’s 2020 income tax return and satisfied on April 15, 2020.
We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.