Recovery Rebate (also known as the Economic Impact Payment)

To help individuals stay afloat during this time of economic uncertainty, the federal government will send payments of up to $1,200 to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the Child Tax Credit qualification rules).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (single or married filing separately), $122,500 (head of household), and $150,000 (married filing joint). There is no income floor or ”phase-in”- all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.

The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. The IRS will compute the rebate based on a taxpayer’s 2019 tax return (or the 2018 return if a 2019 return has not yet been filed). If a 2018 return has not been filed, the IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate. This also means taxpayers living abroad who have their U.S. tax liability eliminated through the foreign earned income exclusion or the foreign tax credit would be eligible for the rebate.

The IRS issued some additional information on 4/15/2020 regarding details associated with the Economic Impact Payments. We encourage our individual taxpayer clients who could benefit from immediate cash payments to closely review the following information.

Qualifying taxpayers can check the status of their payments and provide the IRS with direct deposit details using a new IRS “Get My Payment” application accessed here.

In particular, we recommend that taxpayers who have not received a directly deposited refund from the IRS on their 2018 or 2019 U.S. federal income tax returns, who have income within the relevant range, use the above link to provide the IRS with the necessary information. Note that the IRS system is fairly bogged down with traffic, so patience is required to access the relevant information. It’s not clear whether the IRS will send direct deposit payments to non-U.S. bank accounts. Therefore, if you have a U.S. bank account available, we recommend that you provide that information to the IRS.  

We’ve received some immediate feedback related to the “Get My Payment” application. Based on anecdotal evidence, it appears that taxpayers that haven’t yet e-filed their 2019 return or taxpayers who used a non-U.S. mailing address on their most recent return are getting an error message of “Payment Status Not Available”. Hopefully this matter is resolved soon.

More information about who qualifies and other frequently asked questions can also be found at the IRS website here.  

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Updated 4/16/2020

The material appearing in this communication is for informational purposes only and should not be construed as legal, accounting, or tax advice or opinion provided by Lodder CPA PLLC. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although these materials have been prepared by a professional, the user should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Lodder CPA PLLC assumes no obligation to provide notification of changes in tax laws or other factors that could affect the information provided.