In an earlier email we covered the eligibility requirements for receiving your tax rebate payment and a strategy to maximize your advanced payment of this credit. The final law did not change the issues covered in that email so we won't repeat them here. If you'd like to review the earlier email on this subject you can do so here. With the final law now enacted we want to explain more precisely the Advanced Payment you are receiving starting this week for some.

The CARES Act includes a tax rebate that will be included in your 2020 income tax return. What you are receiving in a few days is an Advanced Payment of that 2020 tax rebate. Your actual rebate will be calculated on your 2020 income tax return and that is important for a number of reasons:

  • If your advanced check was based on 2018 or 2019 income tax returns, perhaps your marital situation has changed in 2020 and makes you eligible in 2020 where you were not eligible in prior years
  • Perhaps your income decreases in 2020 (due to the COVID-19 crisis) and you are eligible in 2020 when you were not eligible based on prior year income.
  • Perhaps you have had children since the prior year that should also get the $500 per child tax rebate or maybe a child that was under 17 in 2019 is now over 16 and no longer eligible.
  • Perhaps in a divorce situation you have custody of a child in 2020 where you did not have the custody in a prior year.

The first reaction to this might be - "So I might not be able to keep my Advanced Payment and may have to repay it?" That is a reasonable question but the answer is "No" as the law is currently written.

  • If your Advanced Payment exceeds the eventual calculation of the Tax Rebate in your 2020 tax return, you are not required to repay the difference.
  • If your Advance Payment is lower than your eventual calculation of the Tax Rebate in your 2020 tax return, you will receive the additional Tax Rebate at that time.

This means you have three opportunities to qualify for the maximum CARES Act Tax Rebate:

  • If you have not filed your 2019 income tax return your Advance Payment will be based on your 2018 income tax return

  • If you have filed your 2019 income tax return your Advance Payment will be based on that return

  • In either of the above cases, if your 2020 income tax return offers the highest Tax Rebate, your rebate will be based on that tax return

Of course, the government could revise the law on this issue but it is not expected. A stimulus tax rebate occurred under similar rules in 2008 where the Advance Payment did not have to be repaid and at this time the CARES Act is written to do the same.

Additional details for specific questions as well as a portal to check on your own stimulus payment are on the IRS Webpage.