What is the Economic Impact Payment (EIP)?
The EIP was created by Congress as part of the CARES Act 2020. In doing this they added Section 6428 which allows for a new $1,200 refundable tax credit ($2,400 on a joint return) plus an additional $500 for each qualified child (under age 17) for the 2020 tax year. What the EIP does is give you an advance of this new credit.
How does this affect me?
U.S. residents will receive the Economic Impact Payment of $1,200 for individual or head of household filers, and $2,400 for married filing jointly if they are not a dependent of another taxpayer and have a work eligible Social Security number with adjusted gross income up to:
- $75,000 for individuals
- $112,500 for head of household filers and
- $150,000 for married couples filing joint returns
Taxpayers will receive a reduced payment if their AGI is between:
- $75,000 and $99,000 if their filing status was single or married filing separately
- 112,500 and $136,500 for head of household
- $150,000 and $198,000 if their filing status was married filing jointly
The amount of the reduced payment will be based upon the taxpayers specific adjusted gross income.
Eligible retirees and recipients of Social Security, Railroad Retirement, disability or veterans’ benefits as well as taxpayers who do not make enough money to normally have to file a tax return will receive a payment. This also includes those who have no income, as well as those whose income comes entirely from certain benefit programs, such as Supplemental Security Income benefits.
Retirees who receive either Social Security retirement or Railroad Retirement benefits will also receive payments automatically.
(Per IRS https://www.irs.gov/coronavirus/economic-impact-payment-information-center)
Do I have to claim the EIP as income on my 2020 taxes?
No, this is an advance of a new credit. It will not be taxable to you when you file your 2020 taxes. You will have to reconcile your advance EIP with the credit when you file next year.
So, does this mean I have to pay it back out of my refund?
Again, No. What will happen when you file your 2020 tax return you will need to reconcile the actual credit with the advance payment you received in 2020. If you are eligible for a higher credit because your AGI is lower in 2020 then 2019 (or 2018) then you will get the additional amount of the credit as a refund on your 2020 tax return.
If you receive more on the advance, then you were eligible for you DO NOT have to pay back the advance EIP.
I still don’t understand. The news said I had to pay it back.
Please make sure that you are getting your information from multiple sources or ask us when it comes to taxes.
I have seen a couple of very confusing news reports the last few days.
Here is are a couple of examples.
#1
Bob & Sally (married) have filed their 2019 Form 1040. The AGI on the return shows $170,000.
Bob & Sally will get and EIP of $1,400 ($2,400 less 5% of 20,000 =$1,000, because they are in the phase out range, which starts at $150,000 for married filing joint)
When Bob & Sally file their 2020 taxes their Form 1040 show an AGI of $145,500.
They are now under the phase out amount and will get an additional refund of $1,000 (eligible for $2,400 and got $1,400 in advance) on their return.
#2
Bob & Sally have file their 2019 Form 1040 and the AGI was $145,500. They will receive a $2,400 advance.
When Bob & Sally file their 2020 tax return their AGI is $170,000. Bob and Sally are now in the phase out range for 2020. On their 2020 return they will do the reconcile as followed.
Advance payment $2,400 less eligible amount $1,400 equals an over payment of $1,000. This over payment is not to be repaid the tax return.
Will my dependent get an advance payment?
Short answer, NO.
If you claim someone as a dependent for any reason, they do not qualify for this EIP. If in 2020 the person is no longer your dependent, they may qualify for the credit on the 2020 return.
Please let us know what other questions you have.
IRS Coronavirus page https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments
Treasury Coronavirus page https://home.treasury.gov/coronavirus