by Trent Krassow

By now, you have probably heard about the $2 trillion economic stimulus package that the Federal government has enacted in response to the Covid-19 pandemic. You have probably heard there is money for you, or your brother, or your kid or the airlines, or... Somebody has to be getting some of this money! ($2 trillion – for reference, is 10% of the US GDP – by far the largest stimulus package we have seen, both in actual dollars and as a percentage of GDP.) There are actually two main pieces of legislation, plus numerous statements from the IRS and Treasury. For simplicity, we’ll give an overview of these together here.

We’ll focus on the impact on individuals, here, but will address how this affects small business elsewhere. If you would like to read the bill itself, please click here (After all, maybe you are self-isolating and need some reading material.)

There are a few main components impacting individuals. Click each topic below to see detailed explanations for each:

1.      Stimulus Checks (See below - Who doesn’t like free money?)

2.      Tax extensions

3.      Unemployment

4.      Retirement account distributions

5.      Required Minimum Distributions

6.      Charitable giving

Stimulus Checks

First things first: stimulus checks. Here are the details:

1.      You don’t have to do anything or apply. The IRS will make the money magically appear in your bank account or mailbox – “magic money” - pretty cool!

a.      If you have had a direct deposit of prior tax refunds, the last bank account used after Jan. 1st of 2018 will be used for your stimulus payment.

b.      If you have not had refunds or not had them directly deposited since Jan. 1st of 2018, the IRS will mail you a check to address of record.

c.      In either case, the IRS will then mail a letter to you indicating how much you received and how it was paid.

2.      Adults get $1200, kids get $500. Well, sorta. There are a few exceptions and phaseouts.

a.      If you are single or married but filing a separate return, cannot be claimed as dependent of another taxpayer, and your most recent tax return showed Adjusted Gross Income (AGI) of $75,000 or less, you will get $1200. For Head of Household filers, the limit is $112,500.  

b.      If you are Married Filing Joint and your most recent return showed AGI of $150,000 or less, you will get $1200 for each of you and your spouse.

c.      If you have kids, you will get an additional $500 for each child, but only if that child would qualify for the child tax credit on your most recent return. This will cut some young adults out of the loop. For example, a 17-year-old kid living at home would not get the $1200 as an adult, nor would Mom and Dad get $500 for that child. That’s a bummer. Right now, there doesn’t appear to be a workaround, even if the parent doesn’t claim the child – the law stipulates that if the parent “could” claim the child, that child is still not eligible for the $1200. That is a real bummer.

d.      The payments are reduced by 5% for each dollar over the threshold for your filing status until it reaches zero. This is based on your 2019 return, or if you haven’t filed for 2019, your 2018 return.

A few examples may help, as may a few terms to use for simplicity:

Stimulus payment: Amount of money you stand to get from the Coronavirus stimulus

Phaseout starting point: Amount of Adjusted Gross Income (AGI) you can have without reducing your stimulus payment

Phaseout ending point: AGI where your stimulus payment is phased out – you get nothing

1.      You are 30 years old, single, and live on your own. You haven’t filed your 2019 taxes yet, but your 2018 AGI was $52,500. You had your 2018 refund direct deposited. The IRS will direct deposit $1200 to that same account in the next few weeks. You do not need to do anything to make this happen – magic! Here’s the logic:

AGI below $75,000, no reduction. You get the full amount!

2.      Same as above, but this time, you filed your 2019 return, showing AGI of $80,000. You will receive a payment of $950.

a.      AGI of $80,000, above the phaseout starting point of $75,000, so reduce the stimulus payment by 5% of the difference:

i.     $80,000 - $75,000 = $5,00

ii.     $5,000 x 5% = $250

iii.     $1200 - $250 = $950

3.      You are married with 2 kids under age 17, and you and your spouse had AGI of $120,000 on your 2019 return. Here’s how the IRS will calculate your stimulus payment:

a.      AGI is below phaseout starting point of $150,000 for a married couple, so no reduction.

b.      2 adults x $1200 each = $2400

c.      2 qualifying children x $500 each = $1000

d.      Total for family: $2400 +$1000 = $3400

4.      Same as number 3 above, but this time, one child is aged 18. Take away $500 for that child, so the stimulus payment is $2900.

5.      Same as number 3 again, but this time, 2019 AGI was $175,000. We reduce the total payment of $3400 by 5% of the difference between the $150,000 phaseout starting point and their actual AGI of $175,000:

a.      $175,000-$150,000 = $25,000

b.      $25,000 x 5% = $1250

c.      $3400 - $1250 = $2150 total stimulus payment