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  • Writer's pictureKathryn Bruns, CPA

Scratching the surface of the "CARES Act"

Updated: Mar 29, 2020

By now, most of you may be familiar with the recently released "Coronavirus Aid, Relief, and Economic Security" Act (CARES ACT). More on the particulars of this Act to come from me later (post tax season); however, I want to touch upon one of the provisions that is of the most interest to many.

The "Recovery Rebate" for individuals is the provision that will issue $1,200, plus $500 for each "qualifiying child" ($2,400 for married file joint couples), in the upcoming weeks. Only "low to middle income" taxpayers will qualify for this rebate. Specifically, a single person's AGI (adjusted gross income) is to be under $75,000 ($112,500 for head of household and $150,000 for married file joint). There are phase out amounts for AGI over these amounts.

An important note is that the AGI used to compute the rebates will be from the taxpayer's 2019 tax return, or, if not yet filed, from their 2018 tax return. If you believe that your upcoming but not yet filed 2019 tax return will cause you to not qualify, then you may not want to file it yet. Of course, you may want to file it if you are expecting a big refund and need the money ASAP. But do think this all through considering your current cash flow situation.

Another important note is that this rebate will be "trued up" on your 2020 tax return. What this means is that although you're not expected to pay this rebate back as if it were a loan, the rebate will be recalculated based on your 2020 tax profile. This works much like the "Obamacare" healthcare subsidy that has been in place the last few years; however, it does not appear you'd have to pay back any portion if the recomputed credit is lower on your 2020 tax return. It does seem that you would have to payback some or all if the recomputed amount is higher when you file your 2020 tax return.

I hope this helps bring some clarity to a portion of the 880 page Act. Over the next two-plus weeks, I'll be working many hours balancing the need to meet commitments to get 2019 tax returns done, as well as trying to assist in other ways, and also keep up-to-date on these provision as best as possible. Once April 15 is behind, I'll be dedicated to serving and assisting as needed, at reduced consulting rates.

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