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About those stimulus checks you're hoping for

edited March 26 in Off-Topic
The linked article is from The Hill

"The payments are essentially an advance on a credit against 2020 taxes. People who receive advance payments based on their 2018 or 2019 income but qualify for a bigger credit amount based on their income this year will receive the remainder of the credit amount to which they are entitled when they file their 2020 tax returns next year.

Recipients will not have to pay any money back to the government if their 2020 income is greater than their income in previous years, according to a Republican aide for the Senate Finance Committee."

I hope someone can figure this out better than I've been able to buy it sounds like this is just an advance on my own money.

Questions and answers on coronavirus relief checks


  • For those who just lost their job due to COVID-19, the $1,200 check does not seem to go far consider many people live from paycheck to paycheck. How are they going to pay their rent/mortgage, healthcare insurance, car payment and etc? The unemployment number reported today, 3.0 million, is only the beginning for higher numbers in the coming months.
  • But only a week ago our president asked all of the states to please not report their unemployment numbers. How disrespectful of the states!
  • Four Republican senators wrongly stated that the bill effectively encouraged people to quit their jobs. If the people charged with voting on the bill misrepresent it, I wouldn't put too much trust in any of rushed quotes or reports.
    Senators Tim Scott, Rick Scott, Ben Sasse and Lindsey Graham — raised concerns about what they called a "drafting error" in the bill, arguing that the expansion could incentivize workers to lose their jobs if the totality of state and federal unemployment benefits exceeds their current income.

    ... "This wasn't a drafting error. Nothing in this bill incentivizes businesses to lay off employees, in fact it's just the opposite," said Taylor Foy, Grassley's communications director. ... "This increase is designed to make the average worker whole. It's also important to remember that nobody who voluntarily leaves an available job is eligible for UI."

    The plain text of the bill says that you're getting a (refundable) credit - that's "free" money that the IRS is giving you when you file your taxes. Think Earned Income Credit.

    However, instead of waiting until you file your 2020 tax return (in 2021) to get the credit, it's being advanced to you now. Think ACA tax credit, where your insurance subsidy is technically a tax credit, but you get to use it in advance.
    n the case of an eligible individual, there shall be allowed as a credit against the tax imposed by subtitle A [individual income tax] for the first taxable year beginning in 2020

    I don't know where the Republican aide to the Finance Committee came up with the idea that you might get a larger credit based on your 2020 income ("bigger credit amount based on their income this year"). Here's the summary put out directly by the Finance Committee: Act Section-by-Section (Tax, Unemployment Insurance).pdf
    For the vast majority of Americans, no action on their part will be required in order to receive a rebate check as IRS will use a taxpayer’s 2019 tax return if filed, or in the alternative their 2018 return.
    Period, end of story. No extra credit for 2020 data. At least none that I've seen in the summary or the full bill.

    Everything above concerns "stimulus" checks. These are distinct from unemployment checks. Those are sent weekly, as described in a different section of the bill:
    This section provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.
    Pandemic Unemployment Assistance is coverage for those who don't get unemployment insurance, such as the self-employed.

  • My question is: Will we have to pay taxes on the income from the stimulus checks? My wife and I don’t need the money. We receive pension and SS payments that more than cover our needs. I am inclined to donate our checks to charity but need to withhold enough to cover the taxes if it’s taxable. I’m also concerned that the checks could bump us up to a higher tax bracket.
  • Upon rereading the text for the umpteenth time, I have come around to believing that one might get an additional refund if one's 2020 AGI implies a bigger credit than one's 2019 (or 2018) AGI.

    The text seems to read that the credit is given on the 2020 tax return (thus based on 2020's AGI). It is the advance - the payment one gets now - that's estimated based on one's 2019 (or 2018) income. The true amount is based on 2020's income.

    Regarding tax credits - I don't believe that they are considered income, though at this point this is just speculation. Just as ACA tax credits are not taxable income, ISTM that this "stimulus" tax credit is likewise not considered income. That's different from the unemployment checks which are not tax credits.
  • "A credit paid ahead, based on 2020 taxable income..." You won't believe this, guys, but for several years, wifey and I have had no tax due. So, we miss out?
  • It's a refundable credit, meaning that you get the money even if you don't owe any tax against which to apply the credit.

    Here's Grassley's FAQ on the bill:
    Even individuals with $0 of income are eligible for a rebate so long as they are not the dependent of another taxpayer and have a work-eligible SSN.
    The money is definitely not taxable:
    the rebate is treated like other refundable tax credits, such as the child tax credit and earned income tax credit, and not considered income.
  • Thank you much for the reply!
  • msf- let me add my thanks as well !
  • If my 2020 income is greater than 150,000 due to Roth conversions, will I have to return the stimulus amount?
  • Probably not. This Congressional Research Service paper says you won't have to pay back the excess:
    If, when taxpayers file their 2020 income tax returns in 2021, they find that the advanced credit is greater than the actual credit, they would not be required to repay the excess credit. In contrast, if the advanced credit is less than the actual credit, the taxpayer would be able to claim the difference on their 2020 income tax return.
    The Urban-Brookings Tax Policy Center concurs: " if it turns out your credit was too big when you file your 2020 tax return in 2021, you won’t have to repay the Treasury."

    While that's almost surely the right answer, this Forbes column states that the statute itself doesn't make this clear:
    If the advance payment is GREATER than what you’re owed on your 2020 tax return, however, the question becomes: what then? The CARES Act does not explicitly require income recognition for any excess, as was required by its counterpart in the House. Nor is there a mechanism for a taxpayer to repay any excess advance payment. Thus it is entirely possible a taxpayer could, for example, receive an advance payment in 2020 based on 2019 or 2018 income, only to find themselves ABOVE the phase out threshold in 2020, giving rise to no credit on the 2020 return, and yet still not have to repay the excess amount to the IRS.
  • So if RMDs in 2019 take someone over the threshold, the RMD suspension in 2020 might bring them back under the threshold if their RMD was a large amount of their income resulting in a refund when 2020 taxes are filed?
  • msf
    edited March 28
    Certainly that's possible.

    Suppose in 2019 someone had an adjusted gross income (AGI) of $99K, including a $24K RMD. And withholdings/estimates were just enough to cover taxes owed. At $99K AGI the individual would receive no advance credit.

    Same numbers in 2020, except that no RMD is taken. Then the individual would have an AGI of $75K and qualify for the full $1200 credit. Since no advance credit was received, the individual would get the full $1200 back on the 2020 return as a refund.


    Remember that the threshold is not a single number but a sliding scale between $75K and $99K. Here's how that works:

    Suppose in 2019 someone had AGI of $89K, including a $14K RMD. The individual would receive an advance credit of: $1200 - 5% x ($89K - $75K) = $1200 - $700 = $500.

    Same numbers in 2020, except that no RMD is taken. Then the individual would have an AGI of $75K and qualify for the full $1200 credit. Since $500 of that credit was already advanced to the individual, the remainder of $1200 - $500 = $700 would be received as a credit (refund) on the 2020 return.
  • @msf - Thanks for the example.
  • edited March 28
    Somewhat on-topic: WSJ reports that Tweety Amin wants *his* signature on the coronavirus stimuls checks, not the regional federal disbursing officer, as is usually done. Because, ego. And elections.

    Of course, most of the money is going back via direct deposit, so ... good luck with that idea as a branding campaign.
  • msf, once again, thanks for your informative post.

    This is a question a friend posed to me. His 2019 taxes were filed a few weeks ago. His AGI was just under $73,000 (line 8b). Included in that was an RMD from an Inherited IRA of a bit over $8,000 (line 4b). However, he had more than $75,000 in tax-exempt interest (line 2a). Is it your opinion that he will receive a stimulus check and if so, how much?

    On the related, as mentioned the $8,000 was an RMD from an Inherited IRA. While you may have covered this, I can not locate your thoughts. It is my understanding that in the coronavirus stimulus bill distributions from inherited IRAs are not included in the waiver and will still need to be taken in 2020. What is your opinion?

  • §2201 of CARES reads in part:
    “(c) Limitation based on adjusted gross income.—The amount of the credit allowed by subsection (a) (determined without regard to this subsection and subsection (e)) shall be reduced (but not below zero) by 5 percent of so much of the taxpayer’s adjusted gross income as exceeds—
    The key here is that it reads AGI, not modified adjusted gross income. So ISTM that there are no modifications to the AGI. One isn't required to modify the AGI by adding in line 2(a).

    Since the AGI was under $75K, I would expect him to receive the full $1,200 credit. That won't be clawed back if his 2020 AGI turns out to be over $75K.

    FWIW, the Internal Revenue Code defines AGI in §62 the way you'd expect.


    Since I also have an inherited IRA, I need to check into this more . My opinion (not advice) based on what I've read so far is that the RMD waiver applies to inherited IRAs also. Much of the commentary I've found hedges, saying that the waiver applies to "certain" IRAs and employer sponsored plans.

    They are likely simply quoting the title of §2203 of CARES, " Temporary waiver of required minimum distribution rules for certain retirement plans and accounts." Upon reading the text, it looks like the "certain" qualifier applies only to employer sponsored retirement plans. Specifically, that the waiver doesn't apply to defined benefit (traditional pension) plans, but does apply to all defined contribution plans as well as to all IRAs.

    I did find one commentary explaining this, noting that the waiver doesn't apply to defined pension plans simply because they're not included in the list of vehicles to which the waiver does apply. But the waiver should apply to all IRAs, because the text says simply that it applies to: "(III) an individual retirement plan."
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