The recently enacted CARES Act calls it a “recovery rebate.” The IRS is referring to it as an “economic impact payment.” Whatever you want to call it, your money from Uncle Sam soon should be on its way.
The IRS said last week that these payments — $1,200 per adult, plus $500 per dependent child — will start going out in the next three weeks.
Since the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, however, there has been a lot of confusion about the payments it authorizes, particularly for Social Security recipients and seniors who normally are not required to file a federal tax return.
So, following is what every retiree should know about the forthcoming payments.
1. Retirees are eligible to receive the payment
All U.S. citizens and residents are eligible to receive the payment if they are not claimed as a dependent on someone else’s tax return and their income is under a certain amount.
Having income is not a requirement for receiving a payment, and receiving Social Security benefits does not bar you from receiving a payment. So, a retiree is eligible to receive a payment, provided that the retiree is a U.S. citizen or resident, and isn’t a dependent.
If you’re eligible, you will receive the full amount if your adjusted gross income (AGI) does not exceed:
- $150,000, and your tax-filing status is married filing jointly
- $112,500, and your tax-filing status is head of household
- $75,000, and you have any other tax-filing status
(You can find your AGI and tax-filing status on your return.)
The payment starts phasing out for taxpayers with higher AGIs, meaning they won’t get the full amount, or won’t get a payment at all.
Specifically, if your AGI exceeds the applicable threshold above, your payment will be reduced by $5 for each $100 by which your income exceeds that threshold.
This means that the following taxpayers would not receive a payment at all:
- A single filer who has an AGI of more than $99,000
- A head-of-household filer with one child who has an AGI of more than $146,500
- Joint filers with no children who have an AGI of more than $198,000
- Joint filers with two children who have an AGI of more than $218,000
2. The payment is automatic
For a vast majority of people, the payment will be automatic, meaning no action is required on their part before they can receive the payment.
So, people who normally are not required to file a federal tax return will not have to file one just to receive a payment. The IRS, the U.S. Treasury and even the Social Security Administration confirmed this last week, after the IRS previously said otherwise.
If you are eligible for a payment and filed a tax return for 2018 or 2019, you will receive your payment automatically. The IRS says it will calculate your payment amount based on the more recent return and will directly deposit the payment into the same bank account listed on that return.
If you are eligible for a payment but normally are not required to file a return, the IRS will use information from your Form SSA-1099 or Form RRB-1099 (your annual statement from, respectively, the Social Security Administration or Railroad Retirement Board) to send you $1,200 per adult.
The U.S. Treasury says of such retirees:
“Recipients will receive these payments as a direct deposit or by paper check, just as they would normally receive their benefits.”
If the IRS does not have your direct deposit information, you should have an opportunity to provide it to the feds soon. The IRS said in a March 30 update:
“In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.”
The best way to ensure that you receive a payment, however, is to file your 2019 taxes if you haven’t already done so, according to the U.S. Senate Finance Committee.
Also, keep an eye on IRS.gov/coronavirus, the IRS’ Coronavirus Tax Relief webpage. The CARES Act requires the Treasury, which includes the IRS, to lead a public awareness campaign to provide information about the payments. But as of Monday, the IRS webpage said to “check back for updates” about the payments.
3. The payment is not taxable
The payment is technically an advance on a refundable tax credit that eligible taxpayers can claim on their 2020 tax return — the one that will be due by April 2021 — according to the Senate Finance Committee. As such, the payment is not considered income and thus is not taxable.
This news should cause anyone who receives Social Security benefits to breathe a big sigh of relief.
If the payment were taxable, it potentially could have increased their 2020 taxes in two ways: by increasing their taxable income and thus their tax rate, and by increasing their combined income and thus the percentage of their Social Security benefits that is taxable.
4. Scammers may be after your payment
The IRS recently warned about scams tied to the payments, noting that retirees are among the potential targets and that seniors should be especially careful during the pandemic. The agency continues:
“The IRS reminds retirees — including recipients of Forms SSA-1099 and RRB-1099 — that no one from the agency will be reaching out to them by phone, email, mail or in person asking for any kind of information to complete their economic impact payment, also sometimes referred to as rebates or stimulus payments.”
In other words, be wary of anyone who contacts you about your payment.
For more pointers like this, check out “7 Tips for Avoiding a Coronavirus Scam.”
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