Individual recovery rebate/credit.
Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of: (1) $1,200 ($2,400 for eligible individuals filing a joint return) plus (2) $500 for each qualifying child of the taxpayer, as defined under Code Sec. 24(c) for purposes of the child tax credit. (Code Sec. 6428(a), as added by Act Sec. 2201(a)) The credit is refundable. (Code Sec. 6428(b), as added by Act Sec. 2201(a))
Observation For purposes of the child tax credit, the term “qualifying child” generally means a dependent child of the taxpayer under age 17.
Illustration A married couple with two children under 17 and adjusted gross income below the $150,000 phaseout threshold (below) would receive a credit of $3,400.
Observation There's no minimum income requirement. Individuals with no income, as well as those whose income comes entirely from non-taxable benefit programs such as SSI, are eligible for the credit and the advance rebate. (CARES Section-by-Section Summary, p. 10).
Eligibility for credit. For purposes of the credit, an “eligible individual” is any individual other than a nonresident alien or an individual for whom a dependency deduction is allowable to another taxpayer for the tax year. Estates and trusts aren't eligible for the credit. (Code Sec. 6428(d), as added by Act Sec. 2201(a))
Observation Children who can be claimed as dependents by their parents aren't eligible for the credit, even if they have enough income to be required to file a return.
Phaseout of credit. The amount of the credit is reduced (but not below zero) by 5% of the taxpayer's adjusted gross income (AGI) in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers. (Code Sec. 6428(c), as added by Act Sec. 2201(a))
Observation Under these rules, the credit is completely phased-out for a single filer with AGI exceeding $99,000 and for joint filers with no children with AGI exceeding $198,000. For a head of household with one child, the credit is completely phased out when AGI exceeds $146,500. (CARES Section-by-Section Summary, p. 10)
Advance payment of credit during 2020. Each individual who was an eligible individual for 2019 is treated as having made an income tax payment for 2019 equal to the advance refund amount. The “advance refund amount” is the amount that would have been allowed as a credit for 2019 had the credit provision been in effect for that year.
IRS will refund or credit any resulting overpayment as rapidly as possible. No interest will be paid on the overpayment. IRS calls these payments “economic impact payments.”
Observation In other words, even though the credit is technically for 2020, the law treats a hypothetical credit for 2019 as an overpayment that IRS will rebate as soon as possible during 2020.
Observation An individual who wouldn't qualify for a credit in 2019 because of too much income may turn out to be entitled to a credit for 2020. IRS won't send an advance rebate to such an individual, because advance rebates are generally based on information on the 2019 return. However, the individual will be able to claim the credit when filing the 2020 return.
The vast majority of people won't need to take any action to receive an advance payment. IRS will calculate and send the payment automatically to those who are eligible.
If an individual hasn't yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer's 2018 return.
If no 2018 return has been filed, IRS will use information from the individual's 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement. This applies to social security recipients and railroad retirees who aren't otherwise required to file a tax return. Those individuals will receive a $1,200 payment.
IRS may make the rebate by direct deposit to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment. IRS is developing a web-based portal for individuals to provide their banking information, so that they can receive direct payments instead of receiving checks by mail.
UPDATE: The IRS has launched this portal here: https://www.irs.gov/coronavirus/get-my-payment
No later than 15 days after IRS distributes a rebate payment, it must mail a notice to the taxpayer's last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.
No advance rebate will be made or allowed after Dec. 31, 2020. (Code Sec. 6428(f), as added by Act Sec. 2201(a); IR 2020-61, 3/30/2020)
Advance rebate reduces credit allowed for 2020. The amount of credit that is allowable for 2020 must be reduced (but not below zero) by the aggregate advance rebates made or allowed to the taxpayer during 2020.
Observation If the taxpayer received an advance rebate during 2020 that was less than the credit to which the taxpayer is entitled for 2020, the taxpayer will be able to claim the balance of the credit when filing the 2020 return. If, on the other hand, the advance rebate received was greater than the credit to which the taxpayer is entitled, the taxpayer won't have to pay back the excess. That's because the 2020 credit can't be reduced below zero.
If an advance rebate was made or allowed for a joint return, half of the rebate is treated as having been made or allowed to each spouse who filed the joint return.
Observation Thus, if taxpayers filed a joint return for 2019 and received an advance rebate, but were divorced or filed separate returns for 2020, each individual will take into account half of the advance rebate when reducing the credit allowed for 2020.
Identification number requirement. No credit will be allowed to an eligible individual who doesn't include the individual's valid identification number on the tax return for the tax year. A “valid identification number” means a social security number, as defined in Code Sec. 24(h)(7).
Observation Under Code Sec. 24(h)(7), a “social security number” must be issued by the Social Security Administration to a U.S. citizen or to an alien who is eligible to be employed in the U.S. Also, the number must have been issued by the due date of the return.
On a joint return, the valid identification number of the individual's spouse must be included. But this requirement doesn't apply if at least one spouse was a member of the U.S. Armed Forces at anytime during the tax year and at least one spouse's valid identification number is included on the joint return.
If a qualifying child is taken into account in figuring the credit, the child's valid identification number must also be included on the return. For a qualifying child who is adopted or placed for adoption, the child's adoption taxpayer identification number is a valid identification number.
An omission of a correct valid identification number is treated as a mathematical or clerical error that can be summarily assessed without using the deficiency procedures. (Code Sec. 6428(g), as added by Act Sec. 2201(a))
U.S. territories. The rebates are fully available to residents of U.S. territories, including Puerto Rico. (Act Sec. 2201(c))
Regulations. IRS is to prescribe regs and other guidance as necessary to carry out the purposes of the credit provision, including appropriate measures to avoid allowing a taxpayer to receive multiple credits or rebates. (Code Sec. 6428(h), as added by Act Sec. 2201(a))
Taxability of payment. In FAQs posted to the IRS website, IRS clarified that the payment is not taxable as income and that recipients will not owe tax on it. IRS further stated that it will not “reduce your refund or increase the amount you owe when you file your 2020 tax return next year” or “affect your income for purposes of determining eligibility for federal governmental assistance or payment programs.”