As previously posted on Forbes.com.
The novel coronavirus pandemic may be unlike anything that we have ever seen. And so it stands as a living, breathing crucible through which to test Newton’s well-known proposition: that for every action there is an equal and opposite reaction. Indeed, the Congressional response to the careening economy left in the pandemic’s wake is, for its part, unlike any that we have seen in modern times. It is nothing short of the largest economic relief bill in American history. But will it be enough? Only time will tell.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act—better known as the CARES Act. With the economy teetering on the brink of recession and businesses reeling from commercial stagnation, Congressional delegates came together for long enough to all-but-unanimously support a 2-trillion-dollar economic-relief package. After passing in the Senate by a 96-0 margin, the measure was adopted by the House of Representatives through a voice vote with minimal dissension in its ranks. The Act employs an array of tax breaks, retroactive amendments to the Tax Cuts & Jobs Act of 2017 (the “TCJA”), immediate rebates, and expanded loan relief to small businesses designed to incentivize employee retention. This article will hit the high points—broader analysis of its provisions will come in the days ahead.
Individual Rebates. The highlight for many individual Americans is the CARES Act’s so-called “advanced recovery rebate.” It works like this: Americans who file single, head-of-household, or married-filing-separate tax returns are entitled to an advanced rebate of $1,200, unless they are subject to the phase-out rules that are described below. Couples filing on a married-filing-jointly basis are entitled to a rebate of $2,400. Taxpayers can tack on an additional $500 for each qualifying child, which generally means tax dependents who are under the age of 17. The rebates will be paid “automatically,” with many Americans simply receiving a deposit in their bank account.
But the phase-out rules—a manifestation of that trite truism that what Congress giveth, Congress taketh away—may rain on a rebate-expecting taxpayer’s parade. Under these rules, if a taxpayer makes a threshold amount of money (technically, has an “adjusted gross income,” or “AGI” in tax jargon, in excess of a specified amount), then the promised rebate is reduced, eventually to zero. Generally, the IRS will apply the phase out based on the taxpayers’ 2019 tax year if a return has been filed or 2018 if no return has been filed for 2019, although there may be exceptions for certain taxpayers.
Here is how the phase out works: For an individual who files a single or married-filing-separate tax return, the phase out begins when they make (technically, have an AGI of) more than $75,000. The rebate is reduced by $5 for every $100 over this phase-out threshold. So, if this individual taxpayer makes $99,001, the individual rebate is completely “phased out.”